Industry output grows at 0.1% in April

Moneycontrol Bureau

April industrial output - as measured by index of industrial production - was almost flat at 0.1% year-on-year, way below the CNBC-TV18 poll estimate of 1.08%. The only consolation was that the number was much better than the (revised) 3.2% decline in March.

The April output would have been worse but for a 5% growth in consumer durables and 5.4% growth in consumer non-durable. Capital goods  continued to be the biggest laggard, declining 16.3%, and underscoring the slowdown in the investment cycle.

A section of the market feels worsening industrial output strengthens the case for a reduction in interest rates by the RBI when it reviews its monetary policy next Monday.

However, many believe a rate cut alone will not be enough to lift the economy out of the slump.

"The sharp fall in investment is not a monetary problem," Sajid Chinoy of JP Morgan told CNBC-TV18. “If it was, then a 50 basis point cut in March would have made some difference. The ball is now in the court of the authorities; the big lifting has to happen from Delhi," Chinoy said.

He added that more than IPP, the inflation figure due on Thursday—especially core inflation—will be key to RBI’s decision on interest rates.

Earlier, the core index growth including steel, cement, coal, refinery, crude, natural gas, fertilisers and such like, growth came in at 2.2%. That's 38% of the industrial output index basket.

Additionally, consumer durables in the form of cars grew by a tepid 3%, which the SIAM -industry organisation said is the slowest in 10 years in terms of the count in April. That again gives you the feeling that we are not going to look at a very good industrial output number.

What will this do to policy? Traditionally, IIP number has been described as volatile and not a basis for policy making. But given the gathering evidence and pressure on the RBI to act because of slowing growth, that will be one more reason why the market and the chorus of industry experts and economists will expect rate cut from the RBI on June 18.

There is considerable pressure on the RBI after that 5.3% fourth quarter GDP growth as well as S&P's rather strong note yesterday. So, IIP will have a little bit of a ripple in the market to be sure either ways.