Factory output fall mirrors lag in the economy

Sluggish manufacturing, mining & capital goods sectors are the reasons

The sharp decline in industrial production, which has been primarily on account of a poor performance by the crucial manufacturing and mining sectors, is likely to put pressure on the Reserve Bank to  rethink on further interest rate hike.

As per new Index of Industrial Production (IIP) data series with 2004-05 as base year, the index has nosedived to 6.3 per cent in April from 13.1 per cent in the corresponding month last year. As per old data series (with base year 1993-94), decline in growth rate is even lower at 4.4 per cent in April from an impressive 17 per cent in the same month last year.

Said a  worried Finance Minister Pranab Mukherjee “the IIP growth figures are disturbing. We need to wait for longer term IIP growth to see the trend.”

Worst hit was manufacturing. As per old series, growth in this sector, which constitutes about 80 per cent of the index weight, sharply declined to 4.4 per cent in April from a high of 18 per cent in the same month last year.

The mining sector—vibrancy of which contributes to overall growth of the industry—expanded by abysmally low 2.1 per cent during April as against robust 12 per cent in April, 2010.

What is quite disturbing is that capital goods sector, which reflects the health of the overall industry, posted growth rate of just 2.5 per cent in April compared to astounding 64.1 per cent in April last year.

Overall, consumer goods also witnessed slowdown in the growth rate, which dropped to 5.9 per cent in April from 11.9 per cent in the same month last year.

Under the new series manufacturing sector posted 6.9 per cent growth in April this year, while mining and electricity production recorded growth rate of 2.2 per cent and 6.4 per cent, respectively. Capital goods segment recorded a growth of 14.5 per cent and overall consumer goods sector expanded by 2.9 per cent in April.

New series

For the first time production trends for 100 new items, including ice cream, fruit juice and mobile phones, has been included for measuring the pace of industrial production under new index series. The new items also include computer stationary, newspapers, chemicals like ammonia, ammonia sulphate, electrical products like solar power systems, gems and jewellery and molasses. Obsolete articles like typewriters, loud speakers and VCRs have been taken off to make the series more reflective of the present-day industrial production and demand scenario.