Economy on downhill, June industrial output contracts 1.8%

The dismal data for June 2012-13 includes a huge downslide of 28% in capital goods sector indicating a clear signal about lack of fresh investment in the economy. The manufacturing segment which has a weight of 75% in the Index of Industrial Production (IIP) dropped by 3.2% in June, prompting the industry to seek immediate reduction in interest rates.

The negative IIP numbers released on Thursday, compare with a healthy growth of 9.5% in June in the previous fiscal. "The quick estimates ...are disappointing. It is important to focus on the critical sectors, remove bottlenecks and give a fillip to production," Chidambaram said.

He added that production would revive "if there are new investments in the industries that created demand". Planning Commission deputy chairman Montek Singh Ahluwalia also expressed concern over deceleration in the factory output.

"The industrial numbers have been disappointing for the first few months," he said. Ahluwalia sounded less optimistic even for the coming months. "I do not see robust industrial growth in the current fiscal," he said.

The cumulative IIP for the April-June quarter also showed a negative trend of 0.1%, as compared to a positive 6.9% in the same period last fiscal. Analysts feel the worsening economic situation will put pressure on the finance minister to quickly move ahead with the initiatives announced earlier this week.

Industry chambers and the stock markets also showed concern over the fall in factory output. The benchmark Sensex lost about 140 points from its peak after the release of IIP data.