LED by a contraction in manufacturing and capital goods,factory output fell for the first time in five months by 3.5 per cent in March reigniting concerns amongst policymakers and India Inc over the flailing economy. The index for industrial production (IIP) had registered a 4.1 per cent growth in February and saw a robust rise of 9.4 per cent in March 2011.
While production in the manufacturing sector shrank 4.4 per cent as against a 3.9 per cent growth in February,capital goods output slid drastically by 21.3 per cent compared to robust 10.2 per cent growth in the previous month.
Finance Minister Pranab Mukherjee blamed it on the slowdown in global demand and investment activity. The IIP figures are disappointing, he said. Continued weak global business sentiments are also adversely impacting recovery in domestic private investment.
He added that domestic investment recovery remains fragile and though RBIs monetary stance has been reversed in the last policy announcement,it will take some more time for interest costs to come down.
The dismal data did not go too well with the markets with the benchmark BSE Sensex witnessing its biggest weekly loss of 3.2 per cent in 2012. It lost 127.07 points to close at 16,292.98 on Friday. The rupee also shed 21 paise to settle the day at 53.63 against the US dollar.
The IIP figures come a day after official that exports grew by a mere 3.2 per cent during April,mainly due to contraction in global demand. The core sector,which forms over 37 per cent of the IIP,also grew by a mere 2 per cent during March as against 6.5 per cent during the year ago period.
The IIP during April-March 2011-12 stood at 2.8 per cent compared to 8.2 per cent during the same period a year ago. The drag during the month was mainly due to the contraction in the manufacturing sector,which grew at a negative 4.4 per cent as against a robust 11 per cent during the same period a year ago.
Mining activity also saw a slump and the sector contracted by 1.3 per cent as against 0.4 per cent during the month. Electricity generation was also dismal with a growth of 2.7 per cent as against 7.2 per cent during the corresponding year-ago period.
Expressing concern over the decline in the IIP,commerce and industry minister Anand Sharma urged RBI for a differential rate of credit for manufacturing making a case for dollar credit for Indian exporters. Through its foreign trade policy in the first week of June,the government is likely to intervene in sectors which require support.
Given the steep decline in the manufacturing,experts urged the government to end the policy-paralysis and usher in reforms. Unless the government acts immediately on the reforms front,we do not expect an improvement in manufacturing until the second half of this fiscal when the base effect would be favourable and the Central Banks rate cut will translate into a positive impact, said Ficci president R V Kanoria.