India’s industrial output grew just 0.1% year-on-year in April, after a slump of 3.2% in March, adding to mounting woes for government's economic managers battling domestic political compulsions blocking policy reforms in the backdrop of a sputtering world economy.
But the data, released on Tuesday, raised hopes that the Reserve Bank of India will cut interest rates in its policy meeting next Monday. The benchmark BSE Sensex, however, shrugged off growth concerns, rising 195 points to 16,862.8.
The manufacturing sector, which accounts for two-thirds of India's industrial sector, grew by a flat 0.1% during April, while capital goods — which mainly represent industrial machinery — shrank (-) 16.3% mirroring slowing investment activity.
“I am disappointed and industry has not yet picked up,” finance minister Pranab Mukherjee said on Tuesday.
The latest data came a day after Standard and Poor’s (S&P) raised fresh questions over India's investment climate.
Business leaders have been demanding a cut in interest rates to nurse companies wounded by slumping demand, high borrowing costs and rising commodity prices. In April, the RBI had slashed the repo rate — its key lending rate-- by 0.50 percentage points to 8%.
Industry leaders want a repeat.
“The 0.5 percentage point cut in the rates by RBI in its last review of monetary policy would not suffice,” RV Kanoria, president, Ficci, said. “It is important that RBI cuts down interest rates further at least by another 0.5 percentatge points in its forthcoming monetary policy review.”
But, RBI will be keeping a close watch on the latest price data that will be released on Thursday. Wholesale price inflation rate rose to 7.23% in April from 6.89% in March. Higher the inflation, lower the chances of a rate cut.