New Delhi, Sept. 12: Industrial output grew by a piffle in July at just 0.1 per cent even as growth in manufacturing declined for a second straight month, exacerbating worries about an economic slowdown and sparking off a clamour from India Inc for a rate cut of at least 50 basis points next Monday when the RBI policy makers huddle for their mid-quarter review of the monetary policy.
But the chances of a rate cut are dim with the RBI continuing to harp on inflation as its biggest worry.
Growth in factory output, as measured by the index of industrial production (IIP), was 3.7 per cent in July last year and 6.1 per cent in the April-July period of 2011-12.
The data, released by the Central Statistical Office, reflect “the impact of a deficient monsoon on domestic consumer demand, a substantial decline in exports and continuing sluggishness in investment sentiments,” said Aditi Nayar, senior economist, Icra.
Industrial output has been weak for most of the past year, as a series of rate increases in 2010-11 by the RBI hurt consumption and investment.
Industry lobby groups have been clamouring for rate cuts and the resumption of economic reforms.
“While monetary intervention in the form of repo rate cut has been due for a while, the economy is in need of sentiment boosters,” said Chandrajit Banerjee, director-general of the CII.
The RBI has, however, held its policy rate steady after a surprise 50-basis-point cut in April. The apex bank has put the onus on the Centre to check its fiscal deficit.
Analysts also expect the apex bank to refrain from lowering rates in its mid-quarterly review of monetary policy on September 17 as inflationary worries remain.
“Inflation risks are elevated and are likely to lead to the RBI holding back any easing in its key policy rate. We believe today’s IIP data is not going to have any influence on the RBI’s stance,” said Indranil Pan, chief economist, Kotak Mahindra Bank.
Dipen Shah, head of PCG (private client group) research, Kotak Securities, said: “The IIP numbers came slightly lower than estimated. The index actually fell on a month-on-month basis also. Apart from the slowdown in capital goods (investments), consumer goods have also started showing moderation in growth. This is also of concern because consumption has been driving the growth in the economy over the past few months.”