IIP growth hits 4-month low of 0.5% in July, inflation dips

India's industrial production grew 0.5% in July - its slowest pace in four months - dragged down by weak mining and consumer and capital goods output, indicating that the slowdown in Asia's third-largest economy could be stickier than thought.

India's industrial production grew 0.5% in July - its slowest pace in four months - dragged down by weak mining and consumer and capital goods output, indicating that the slowdown in Asia's third-largest economy could be stickier than thought.

The manufacturing sector, which accounts for about 75% of India's total factory output, contracted by 1% in July from a 3% growth in the same month of the previous year, data released on Friday showed.

Capital goods output, a proxy for investment activity, contracted by 3.8% in July from 15.9% in the same month of the previous year, in a sign that companies aren't adding capacity lines, critical to creating new jobs.

"A major contraction in growth of capital goods denies any kind of revival in investments cycle. This could be attributed to prevailing higher interest rates, existence of excess capacity and limited demand," credit rating firm CARE said in a research report.

Consumer durables output also contracted 20.9% during the month from a 9.6% contraction a year ago, reflecting weak demand for goods such as televisions and refrigerators.

Experts, however, said that demand for consumer goods will pick up from August leading up to the festival season.

"We are hopeful of a rebound in manufacturing activities as demand picks up by the end of current quarter," said Debopam Chaudhuri, chief economist, ZyFin Research.

The latest data comes barely two weeks after official data showed that the Indian economy expanded at its fastest pace in two-and-a-half years in April-June, rekindling hopes of a revival in the economy that is battling to claw out of a quarter century slump.

India's GDP - the total value of goods and services produced in the country - grew at 5.7% during April-June 2014, from 4.6% in the previous quarter, signalling a major jump from the sub-5% growth of the last two years.

"The muted performance of the industrial sector... on the back of the negative growth of the manufacturing sector indicates that a full-fledged industrial recovery could still be some distance away," said Chandrajit Banerjee, director-general, CII.