In yet another signal for urgent corrective action to spur capital investment and put the economy on a higher growth trajectory, industrial production in July witnessed a dismal overall expansion of 0.1 per cent, mainly owing to the manufacturing sector continuing to be a laggard.
The sharp pull-down in industrial growth during the month, when compared to a comparatively healthy 3.7 per cent expansion achieved in July, 2011, can squarely be attributed to the manufacturing sector being the worst performer.
Accounting for more than 75 per cent of the items in the IIP (index of industrial production), the sector saw its growth rate contract by 0.7 per cent in July, and strayed further into negative territory to show a decline of 0.9 per cent during April-July of the current fiscal.
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Accordingly, even as the overall industrial expansion in July marked an improvement — on a sequential basis — over the negative growth of 1.8 per cent in June, the poor manufacturing show resulted in a cumulative growth contraction of 0.1 per cent during the four-month period of 2012-13.
A more worrying sign in the IIP data is that among the various manufacturing segments, the output growth in capital goods declined by 5 per cent during the month.
Alongside, showing a steady decline in orders for equipment, which are used to manufacture finished products, the output of the capital goods segment contracted by a massive 16.8 per cent during the April-June period.
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Commenting on the IIP data, Finance Minister P. Chidambaram expressed disappointment over the poor show but assured India Inc. that the government is engaged with the industry to identify the constraints that affect industrial production. In a statement, he said: “The IIP estimates reveal that the performance of the economy continues to be disappointing… [The government] is intensively engaged with industry on the constraints that affect industrial production and will continue its efforts to find practical solutions to the problems.”
Noting that only eight industry groups out of 22 have shown positive growth, Mr. Chidambaram said that while the index for July, 2012 (over July, 2011) is positive at 0.1 per cent, “it is too early to claim that this is a sign of a turnaround”.
Gloomy scenario
Even as apex chamber FICCI voiced serious concern over the gloomy industrial scenario and clamoured for easing of interest rates by the Reserve Bank of India (RBI) ahead of its monetary policy review on September 17, the Confederation of Indian Industry pointed out that the economy was in need of sentiment boosters.
“Investments have dried up... It is imperative that non-legislative policy measures are announced at the earliest, which could help improve confidence levels in the economy,” the chamber said.
In fact, earlier during the day, that is exactly what the Finance Minister did. As was indicated by Economic Affairs Secretary Arvind Mayaram on Tuesday, Mr. Chidambaram had a meeting with the heads of cash-rich PSUs (public sector undertakings) to understand the problems they were facing in making investments which had been kept on hold and also get definite numbers pertaining to their proposed investment plan this fiscal and over a five-year period. The PSUs, which have committed investment plans, among others, include ONGC, Coal India , NTPC, BHEL, SAIL and NMDC.
As per the IIP data, mining sector output in July dipped by 0.7 per cent as against a growth of 0.7 per cent in the same month a year ago while power generation witnessed a dip in growth rate to 2.8 per cent during the month as compared to a growth of 13.1 per cent in the same month a year ago.
In consumer goods, while consumer durables output witnessed a decline in growth rate to 1.4 per cent as compared to 9 per cent in the same month last year, the consumer non-durables output growth fell to 0.1 per cent in July, as against a growth of 4.1 per cent in the same month last year.