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June factory growth weakens

New Delhi, Aug. 12: Growth in industrial output slipped in June as the economy struggles to emerge from its longest spell of sub-par growth in a quarter-century.

Annual growth in output from mines, utilities and factories slowed to 3.4 per cent in June from an upwardly revised 5 per cent a month earlier, government data showed on Tuesday.

During the April-June period of the current fiscal, IIP (index of industrial production) has recorded a growth of 3.9 per cent against a contraction of 1 per cent in the first quarter of 2013-14.

The factory output number has managed to remain in positive territory for the third month in a row mainly because of a better show by manufacturing, mining and power sectors and a higher output of capital goods.

During June, manufacturing sector growth slowed down to 1.8 per cent from 5.1 per cent a month ago, though higher than 1.7 per cent a year ago. Mining and electricity sectors grew at a robust rate of 4.3 per cent and 15.7 per cent, respectively.

The consumer durables segment declined 23.4 per cent in June against a dip of 10.1 per cent a year ago, while the production of capital goods, a barometer of demand, grew 23 per cent in June. This was in sharp contrast to a contraction in output by 6.6 per cent in the same month last year.

The numbers came as a surprise to some economists who were expecting strong growth as early indicators of consumer demand such as car sales had showed robust expansion during the month.

“Though we have seen a pickup in the order book, the number variances for these two classifications (consumer durables and capital goods) seem high. We expect some corrections in the next cycle,” Anis Chakravarty, senior director of Deloitte in India, said.

Aditi Nayar, senior economist with ICRA, said: “The weaker-than-expected IIP growth for June in spite of the sharp pickup in core sector data and healthy exports growth shows that the recovery is yet to become broad-based.”

“The sharp contraction in consumer durables output in June was partly on account of buyers refraining from big-ticket purchases as a weak start to the monsoon dampened consumer confidence.

The volatility in growth displayed by various sub-components of capital goods raises doubts about the sustainability of the high 23 per cent growth displayed by this sub-index in June,” she said.

According to IIP data, output of consumer goods contracted 10 per cent in June compared with a contraction of 1.5 per cent a year ago. Output of consumer non-durable goods grew at a meagre rate of 0.1 per cent in June compared with 6.2 per cent in the same month last year.

The mining sector grew 4.3 per cent in June against a dip of 4.6 per cent a year ago.

Power generation increased 15.7 per cent in June compared with flat output in the same month of 2013.

Sidharth Birla, president of Ficci, said, “An encouraging sign is double digit growth in capital goods for the first quarter of 2014. However, sectors like consumer goods remain a cause for concern.”

 
 
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