Slow IIP figures a major worry

INDUSTRIALgrowth fell to a21-month low at 3.3 per cent in July against 9.9 per cent in the same month last year. Contraction in the production of capital and intermediate goods contributed most to the fall, prompting government advisors to call for a “serious” re-look by the Reserve Bank of India at monetary tightening. They said the full-year factory output projection may have to be revisited.

Industrial growth, as measured by the Index of Industrial Production (IIP), proved volatile again. It had grown by a robust 8.8 per cent in June. A lower figure than the July 2011 number was last seen in October 2009, when industrial growth was merely 2.32 per cent. Growth in manufacturing, which constitutes 75.5 per cent of IIP, hit a 21-month low at 2.3 per cent in July against 10.8 per cent in July last year. We have to seriously look at whether we should stick to the policy we have used, which is a very standard policy, or begin to think out of the box manufacturing figures a major worry.

C Rangarajan Economic Advisory Council chairman said ‘’Terming the IIP trend ‘disappointing’, Prime Minister’s growth projections for the current financial year would have to be revisited. The council had pegged industrial growth for this financial year at 7.1 per cent, which it said would deliver economic growth of 8.2 per cent, provided services grew 10 per cent and agriculture 3 per cent. For the first four months of this year, industrial production grew 5.8 per cent against 9.7 per cent a year ago.

Capital goods production fluctuated widely, recording significantly negative growth in July at 15.2 per cent, compared to 37.7 per cent in June. However, that could be attributed to the base effect, as capital goods expanded 40.7 per cent in July last year and just 3.7 per cent in June 2010.