JOIN US The UPA government’s worries on the economic front intensified on Thursday as industrial growth slipped into the negative zone in June under the combined impact of an alarming slowdown in capital goods output and faltering manufacturing activity.
The industrial sector, which accounts for over 28 per cent of the country’s gross domestic product, declined 1.8 per cent in June in terms of Index of Industrial Production (IIP) after recording a modest growth of 2.5 per cent in May, according to government data released on Thursday. The industrial output had grown 9.5 per cent in June last year.
The capital goods production, a key investment indicator, contracted close to 28 per cent against a growth rate of nearly 39 per cent a year ago. The sector, on a continuous decline, has shown growth only once in the past 10 months.
The manufacturing sector, which constitutes over 75 per cent of the IIP, declined 3.2 per cent in June against a growth of 11.1 per cent in the same month last year. In April-June quarter, the manufacturing output declined by 0.7 per cent.
Of particular concern to economists is the slowdown in consumer non-durables, which indicated significant cut down in consumer spending. The consumer non-durables output has contracted for four consecutive months.
“At a time when you are facing a bad monsoon, which will eventually impact consumer durables, the fact that non-durables are not doing well is a significant concern, which in conjunction with weak capital goods numbers make us believe that we are hit with a double whammy,” said economist Sajjid Chinoy.
“Investment, of course, has been weak but now consumption is pretty steadily falling as well,” Chinoy, from J P Morgan remarked.
A worried Finance Minister P Chidambaram said there was a need to remove bottlenecks and give fillip to production. "The production will revive if there are new investments in the demand-creating industries," Chidambaram said in a statement.
As per the official data, industrial output in the April-June quarter too contracted by 0.1 per cent this fiscal, against a growth of 6.9 per cent in the corresponding period a year ago.
Analysts said the weak data will only pile pressure on the new finance minister to jump start the reform process and revive investment, which is likely to be a key to overall growth in the fiscal year.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said, although the industrial production numbers were disappointing, the initiatives announced by Chidambaram to boost investment sentiment will help in turnaround of the economy.
Amid the weak IIP numbers, the only ray of hope came from mining and electricity, which registered positive growth. While electricity output grew 8.8 per cent, mining production increased 0.6 per cent in June.