Factory growth dips to 11.5%

A resurgent rebound in industrial output appeared to suffer a jolt on Monday as factory output in May showed a year-on-year growth of 11.5 per cent, below an expected 15 per cent, while the growth rate for April was also revised down to 16.5 per cent from 17.6 per cent. HT reports. Contrarian Views

A resurgent rebound in industrial output appeared to suffer a jolt on Monday as factory output in May showed a year-on-year growth of 11.5 per cent, below an expected 15 per cent, while the growth rate for April was also revised down to 16.5 per cent from 17.6 per cent.

HT Image

Growth was affected by the wearing out of a low base effect linked to the downturn hit previouis year. Stocks fell from new highs on the news, but the Finance Secretary took the news in his stride, saying the rate marked a return to a secular growth rate. Electricity and mining grew at a slow pace.

The manufacturing sector that comprises about 80 percent of the index of industrial production (IIP), grew by 12.3 per cent in May, while dropping from 19.4 per cent in April.

"Whatever output lag was there in the economy has been filled and the manufacturing sector is now showing the kind of average secular growth which continues to be good and would be favourable," Finance Secretary Ashok Chawla said.

While growth eased, analysts said this would not affect the mood of the inflation-weary Reserve Bank of India, which may decide to make money costlier by raising key policy rates at its policy review on July 27. Wholesale-price based inflation stood at 10.16 per cent in May.

Economists expect inflation to breach 11 per cent in June, reflecting the rise in fuel price hike announced late last month.

The RBI has already announced a sudden 0.25 percentage point hike in two of its key rates.

Capital goods production rose 34.3 per cent year-on-year in May after an annual rise of 72.8 per cent in April. Consumer durables output grew 23.7 per cent, down from a 37 per cent rise in the previous month. Mining output grew 8.7 per cent and power generation 6.4 per cent.

Industry chamber Ficci said a low growth of 1.7 per cent witnessed by the textile sector was worrisome as textiles are the biggest job spinner after agriculture.

"Sectors which are basically under the public sector ownership are not showing a very robust growth and that is something to be concerned about," Rajiv Kumar, director, ICRIER told HT.

For 2009-10 as a whole, industry grew by 10.4 per cent.