New Delhi, May 11: India’s industrial output shrank 3.5 percent in March from a year earlier, driven by poor performance of manufacturing and mining sectors, dampening hopes of an early revival of growth, government data showed Friday.
This is the first contraction in the factory output since October 2011 when it shrank by 4.7 percent.
The factory output, measured in terms of the Index of Industrial Production (IIP), had registered a growth of 4.1 percent in February year-on-year.
Expressing disappointment over the unexpected contraction, Finance Minister Pranab Mukherjee said weak global cues had adversely impacted business sentiments and investments in India.
“Domestic investment recovery remains frail. Though RBI’s monetary stance has been reversed in last policy announcement, it will take some more time for interest costs to come down,” Mukherjee told reporters.
The overall industrial output growth for 2011-12 fell to 2.8 percent as compared to 8.2 percent in the previous year, according to data from the Central Statistics Office.
Mukherjee said weak numbers in March were also partly because of the base effect. Factory output grew 9.4 percent in March 2011.
The manufacturing sector was the biggest drag on the IIP index in March. It contracted by 4.4 percent in the last month of fiscal 2011-12.
The mining sector contracted by 1.3 percent. However, electricity sector registered a sluggish 2.7 percent growth.
As per “use-based” classification, there has been negative growth in capital goods (-21.3 percent) and intermediate goods (-2.1 percent).
However, basic goods registered a growth of 1.1 percent, consumer durables 0.2 percent and consumer non-durables 1 percent.
A sharp contraction in the factory output, especially in the capital goods and manufacturing segments, indicated that India is unlikely to achieve even 6.9 percent GDP growth in the fiscal ended March 31, 2012.
In the budget for 2012-13 presented in March, the government had estimated 6.9 percent growth for 2011-12 and projected a 7.6 percent expansion in GDP for the current financial year.
The chairman of the Prime Minister’s Economic Advisory Council, C. Rangarajan, said the data was “very disappointing”.
“We had not expected such a sharp decline in industrial production. We have thought of weakening of growth but not negative growth,” Rangarajan said.
Rangarajan said the Reserve Bank of India will take into account the slowdown in industrial output while formulating its policy in the future.
“The Reserve Bank will look at both sets of factors. They will look at the numbers related to industrial production, and they will also look at the numbers relating to inflation,” he said.
The RBI in its annual monetary policy for 2012-13, announced April 17, lowered the key policy rates by 0.50 percent for the first time in three years.
Expressing “deep concern” over the data, Commerce and Industry Minister Anand Sharma said the central bank should work out a mechanism to make available cheaper credit for manufacturing sector to revive growth.
Sharma said he would meet exporters this month to analyse the impact of slowdown in global demand.
RBI Deputy Governor Subir Gokarn said the March data indicated a sort of slowdown.
“If the contraction suggests a much deeper slowdown or not is something I can not confirm now. We need to go back and analyse and place in the perspective of other indicators that we watch,” Gokarn said at an industry event in Bangalore.
The industry meanwhile said the Reserve Bank should further ease the monetary policy measures to raise demand and investment activity.
Chandrajit Banerjee, Director General, CII, said a coordinated action from the government and the central bank was called for at this juncture.
“Besides easing the monetary policy through rate reduction and also cut in cash reserve ratio (CRR), it is important that some of the key reforms, which are politically relatively easy to get through, are announced at the soonest.”
FICCI president R.V. Kanoria said “the IIP figures are indeed serious and point towards a continued slowdown which does not seem to have bottomed out”.
The contraction data had its impact on the equities markets as the Sensex and the Nifty extended falls in trade Friday.