Growth output for May revised downwards.
By R. Chandrasekaran
CHENNAI: India’s Industrial Production (IIP) dropped 2.2 percent in June, even before the Reserve Bank of India (RBI) tightened money policy in its efforts to defend the Indian currency. The drop in IIP is more than the economists and analysts’ predicted.
For the second straight month, IIP slipped in June even as the growth output for May was revised downward to 2.9 percent contraction at an annual rate, compared to 1.6 percent contraction disclosed by the government earlier.
Economic analysts surveyed by Reuters had predicted the factory output to fall 1.2 per cent annually.
The government’s statistics office said that the manufacturing sector, which represents 76 per cent of the industrial production, recorded a drop of 2.2 per cent from a year earlier period. However, soft drinks, which forms part of non-alcoholic beverages, recorded growth; production increased 28.2 percent in June.
Significantly, cigarettes production dropped by one-fourth in June over the last year month as the Finance Minister P. Chidambram had raised excise duty on cigarettes by about 18 percent in his budget proposals for the fiscal year ending March 2014.
Another key aspect is capital goods production, a key indicator for investments in the economy. It slipped 6.6 per cent in June at an annual rate from the previous year month.
The June IIP contraction and the revised downwards May contraction could well indicate that the first quarter economy could likely be below the 5 percent growth, thereby putting more pressures on the coming quarters. The September quarter is also not likely to be good as the tight money policy reduced the chances of any recovery for higher growth in the economy.
There is already a call from the Indian corporate to reduce interest rates to stimulate growth. Commenting on the June IIP, the Federation of Indian Chambers of Commerce and Industry (FICCI) president Naina Lal Kidwai said, “The continuous decline in manufacturing will impact the employment scenario and manufacturing can be revived by stimulating demand, lowering the interest rates and expediting investment projects.”
To contact the author, email to rchandrasekaran@americanbazaaronline.com