India?s industrial production takes a hit

Updated: Tue, Feb 12 2013. 11 35 AM IST

New Delhi: Belying expectations that the factory output cycle had turned, India?s index of industrial production (IIP) for the month of December came in at -0.6%, below estimates put out by most agencies.

The number should be seen in the context of the government statistics office?s prediction that the Indian economy could grow by only 5% in 2012-13. Some experts were expecting the December factory output number to reflect the widely held belief that the economy had bottomed out, and that most government data would slowly tick north.

To be sure, India?s factory output numbers have always been suspect, because of the way the index is constructed. They are also prone to revisions. Still, the minor contraction in the index is bound to disappoint investors.

At 11.15am, the Sensex, the benchmark index of the BSE, was trading marginally up from Monday?s close.

In the April-December period of the current financial year, IIP has only grown 0.7%.

While the mining (-4%) and manufacturing (-0.7%) sectors contracted during the month, the electricity sector grew 5.2%. In terms of industries, production in 12 out of 22 industry groups in the manufacturing sector contracted.

Both consumer durables and consumer non-durables saw contraction in production by 8.2% and 1.4%, respectively.

The Central Statistics Office (CSO) last week projected economic growth would decelerate to a decade?s low at 5% in 2012-13 beating expectations on the downside. The finance ministry later rejected the forecast holding that it was based on dated information and said growth would be 5.5% or more during the year, hoping for a turnaround.

CSO has projected factory output will slow to 2% in 2012-13 from 2.7% a year ago, mostly due to a drastic slowdown in manufacturing and mining activities.

Finance minister P. Chidambaram, who is set to present the Union Budget on 28 February, faces the unenviable task of balancing the urgent need for fiscal consolidation without killing the green shoots of growth ahead of the 16th general election scheduled in 2014. Last month, the Reserve Bank of India (RBI) cut policy rates by 25 basis points for the first time in nine months to boost growth as inflation showed signs of moderation. One basis point is 0.01 percentage point. RBI governor D. Subbarao said on Monday that although growth has moderated significantly, inflation still remains high?it was 7.2% in December.

Source: http://www.livemint.com/Politics/VZ2ZaKWgFyN9WAFmOuLEPJ/Indias-industrial-production-takes-a-hit.html

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