Factory output contracts in May

Consumer goods output declines 4%

Showing persistent weakness in the economy and slump in demand, India’s factory production contracted by 1.6 per cent in May after growing 2.3 per cent in the previous month, prompting strident calls for a rate cut by the Reserve Bank of India.

Output in the eight key infrastructure industries, also known as the core sector and which makes up almost 40 per cent of the index of industrial production, slowed to an annual 2.3 per cent in May, from 2.4 per cent in April.

While mining contracted 5.75 per cent in May, manufacturing declined 2 per cent and  capital goods production, a barometer for investments in the economy, contracted an annual 2.7 per cent from a year earlier. Electricity production, however, grew only 6.2 per cent.

A private survey on manufacturing has suggested sluggish growth in the sector over the past few months. The HSBC Manufacturing PMI survey showed activity in Indian industries hovered the 50 mark, that separates growth from contraction, in May and June, even though it has held above that level for over four years. Manufacturing sector constitutes about 76 per cent of industrial production.

 In terms of industries, 11 out of 22 industry groups in the manufacturing sector have shown negative growth in May as compared to the corresponding month of the previous year.  Consumer goods production too contracted 4 per cent, consumer durables remained in trouble . A weak consumer demand is evident from the disappointing car sales data car sales in India fell for a record eighth month in row in June with a dip of 9 per cent as economic slowdown and low consumer sentiments continue to hit demand. India’s largest car maker Maruti suspended a shift in one of its production plants.

 Recent macro economic data have shown persistent weakness in the Indian economy, which does not support the fragile recovery seen in the final three months of previous fiscal,India’s economy grew 5 per cent in the year ended March 31, the slowest pace in 10 years, as high borrowing costs intended to douse inflation hurt corporate investments and consumer spending. 

The finance ministry expects growth to exceed 6 per cent this fiscal but IMF cautioned that while old risks such as a protracted recession in the euro zone remain, new threats have emerged in the emerging markets, which may lead to sustained capital flow reversals.