July IIP at 3.3% Vs 8.8% previous month

Moneycontrol Bureau

The Index of Industrial Production (IIP) growth for the month of July, 2011 saw a sharp decline at 3.3% compared to 8.8% in the previous month. A CNBC-TV18 poll had estimated the July number to come in at 6.1%.

The IIP growth for the April-June quarter was at 5.8% compared to 9.7%, year-on-year (YoY).  The dismal number was mainly on account poor performance by capital goods, manufacturing and mining sectors, reflecting sluggishness in the economy.  

Meanwhile, the June IIP has remained unchanged.

Output of the manufacturing sector, which constitutes over 75% of the index, grew by only 2.3% in July compared to 10.8% expansion in the same month last year, according the official data released today.

According to C Rangarajan, chairman of Economic Advisory Council to the Prime Minister, the decline in capital goods has resulted in the weak IIP numbers. The sector saw a massive decline of a negative 15% compared to a healthy growth figure of 40.7% year-on-year.

He expects IIP to improve in the second half of the year.  "I think the Reserve Bank will take the numbers into account," he said.

The BSE Sensex extended losses to more than 2% after the data.

The partially convertible rupee weakened past 47 to a dollar to 47.0050, a level last seen on August 31, 2010.

The growth in mining production was 2.8% in the month, down from 8.7% in the same month last year.

Production of intermediate goods fell by 1.1% during the month under review against a growth of 8.5% in July 2010. "We have always seen -- with a two to four month kind of a lead period -- intermediate goods production explaining the IIP in a pretty decent fashion,"  said Siddhartha Sanyal, chief India economist at Barclays Capital.

Consumer durables grew by 8.6% in July as compared to a growth of 14.8% in the corresponding month of last year.

On a positive note, the electricity production improved witnessing a growth of 13.1% in July this year as against a growth of 3.7% in July, 2010.

The slowdown has been more sentiment-related and not in terms of business activities, said P Sitaram, CFO of IDBI.  "People are looking at the uncertainties, which could loom towards the latter part of the year, and this may get factored into some of the decisions which they may take as they go along," he told CNBC-TV18.

Sagar Salvi
sagar.salvi@network18online.com