A fall in mining output, contraction in capital goods and dip in manufacturing output pushed India’s industrial production growth to near zero level in April, compounding worries of a slowdown in the economy and mounting pressure on the government to come up with a stimulus package.

The growth in industrial output as measured by the Index of Industrial Production (IIP) grew only 0.1 per cent in April 2012 against 5.3 per cent in the same month a year ago, government data showed.

Disappointed by the sluggish factory output, Finance Minister Pranab Mukherjee said the government has to take steps to send positive signals to investors as the slow growth was driven by an investment collapse. “I am disappointed. Industry has not yet picked up. Negative sentiments are there. We have to take steps to give positive signals,” Finance Minister Pranab Mukherjee said.

The news on weaker industrial output, which came just a day after rating agency Standard & Poor’s warned that India might be the first among BRIC nations to lose investment grade rating, also increased hopes of a rate cut by Reserve Bank of India in its mid-quarter review scheduled next week. Taking the cue, stock investors pushed up BSE Sensex by 195 points.

Manufacturing, which constitutes over 75 per cent of the index, grew barely 0.1 per cent, against 5.7 per cent in April 2011. Capital goods contracted 16 per cent and output in the mining sector, another key economic driver of growth fell for the second consecutive month to 3.1 per cent. The only silver lining was that IIP turned positive in April from a negative 3.2 per cent in March.
Most economists, however, felt that the inflation data to be announced on June 14 is more likely to decide RBI’s monetary stance rather than IIP, which has of late become too volatile.

“The inflation number will be crucial. Headline inflation is already above 7 per cent.  The all India CPI is in double digits. The RBI can simply not turn a blind eye to rising inflation, while deciding on policy rates,” Harish Galipelli, head (commodities) of JRG securities, told Deccan Herald.

Reacting to the IIP data, Industry Chamber FICCI president R V Kanoria said the government needed to take bolder decisions and at a much faster pace to push forward reforms for a quick turnaround in the industrial growth.

According to Chandrajit Banerjee, director general, CII, the government must rejuvenate business confidence.