IIP grows just 0.1% in July; India Inc pitches for rate cut

Decline in manufacturing sector growth pulled down the overall industrial expansion to just 0.1% in July, prompting India Inc to press for atleast 0.50% cut in interest rate by the Reserve Bank in its policy review next week.

Growth in factory output, as measured by the index of industrial production (IIP), during the April-July period contracted by 0.1%, official data said. However, on sequential basis July's growth at 0.1% is an improvement over (-) 1.8% recorded in June. The worst performer has been the manufacturing sector, which constitutes over 75% of the index, showing a decline of 0.7% in July, and 0.9% in the April-July period. Concerned over the performance of the manufacturing sector, industry chamber Ficci urged the "RBI to cut down interest rates further at least by another 50 basis points immediately". Among the different industrial segments, production of capital goods, which refers to the equipment used by industry to produce consumer items, declined by 5%. During the April-July period, the output of the sector contracted by 16.8%. "The economy is 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," industry chamber CII said. The Reserve Bank is scheduled to announce its mid- quarterly review of monetary policy on Monday which might contain some steps to boost growth. Finance Minister P Chidambaram, who met heads of PSUs today, has already indicated that steps would be taken to boost investment. The Department of Economic Affairs Secretary Arvind Mayaram had said yesterday that the government would soon come out with steps to contain fiscal deficit and promote investments as well as GDP growth that had dipped to 9-year low of 6.5% in 2011-12. Meanwhile, the Commerce and Industry Ministry has called a meeting of central ministries, state government officials as well as industry representatives tomorrow to chalk out the strategy for reviving the manufacturing sector. The industrial output in July last year was 3.7%, and 6.1% in the April-July period in 2011-12. Mining sector output dipped by 0.7% in July, as against a growth of 0.7% in the same month a year ago. Consumer goods production was up 0.7% in July as compared to 6.4% growth in the same month last year. In all, only 8 of the 22 industry groups in the manufacturing sector showed positive growth in July 2012. Consumer durables production showed a decline in growth rate as this segment increased by 1.4% in July, compared to 9% in the same month last year. The consumer non-durables output growth declined to 0.1% in July, as against a growth of 4.1% in the same month last year. The basic goods production growth slowed to 1.5% in July, compared to 10% a year ago. Power generation too witnessed a dip in growth rate as it declined to 2.8% during July, compared to 13.1% in the same month a year ago. Experts said, however, it is unlikely that RBI would cut interest rates in the upcoming monetary policy review. "RBI's policy focus is still on inflation. I think it will hold the policy rates steady," Crisil Chief Economist D K Joshi said.