Mfg,mining pull down IIP growth to 5.6

Factory output,as measured by the Index of Industrial Production IIP,slipped to 5.6 per cent in May from 8.5 per cent recorded a year ago.

The previous low,as per the new IIP series launched earlier this year,was 4.5 per cent in August 2010.

The slowdown in growth has been mainly on account of poor performance of the manufacturing and mining sectors and lower offtake of capital goods.

8220;It IIP for May is not encouraging8230; We are having discussions with various people,chambers of commerce and others and we are working out how to improve the manufacturing sector,8221; Mukherjee said.

The IIP numbers for April has also been revised downward to 5.7 per cent from the earlier estimate of 6.3 per cent.

As per the data released today,industrial growth in April-May this year averaged 5.7 per cent,compared to 10.8 per cent in the same period last year.

Industry chambers,including Ficci and CII asked the government to provide incentives to the manufacturing sector.

They said repeated rate hikes have hurt investments and urged the RBI to refrain from increasing them at its review on July 26.

8220;We hope that the RBI will take note and resist from raising interest rates again in its quarterly review of monetary policy scheduled on July 26,8221; CII Director General Chandrajit Banerjee said.

The RBI has hiked rates 10 times since March 2010,to curb inflation and tame demand. Headline inflation stood at 9.06 per cent in May and experts have said it will breach the double-digit mark by July on account of recent hike in prices of diesel,cooking gas and kerosene.

Ficci said slowdown in investments in the past few months has affected the growth of manufacturing sector.

8220;The government should consider providing an incentive package and more importantly focus on creating conducive environment for reviving investments in the economy,8221; Ficci President Harsh Mariwala said.

Mukherjee,on his part,said the focus on enhancing the manufacturing sector will be part of the government8217;s plan.

The government aims to increase the contribution of manufacturing to the GDP to 25 per cent in coming years from about 16 per cent at present.

The manufacturing sector,which accounts for over 75 per cent of the total weight of the index,grew by just 5.6 per cent in May,2011,as against 8.9 per cent in the same month of 2010.

Similarly,the mining sector grew by a meagre 1.4 per cent in May,2011,as against 7.9 per cent in the same month last year.

The IIP is even worse as per old series of index with base year of 1993-94 as it stands at 3.6 per cent in May as against 12.2 per cent in the same month last year.

Commenting on the numbers,Planning Commission Deputy Chairman Montek Singh Ahluwalia said: 8220;Clearly it the IIP numbers continues to show a somewhat lower growth rate8230; We need to have a much more focussed strategy to accelerate growth in manufacturing in the course of preparing for the 12th Plan 2012-17.8221;

Meanwhile,the February IIP numbers have been revised upwards to 6.7 per cent from 6.5 per cent as per the new series. According to the old series,IIP growth in February was only 3.6 per cent.

Experts said the slowdown in industrial growth is the result of repeated rate hikes by the Reserve Bank and said the factory output is likely to remain low for some time.

8220;May IIP growth numbers further reinforce growth slowdown fears8230; Slow growth of capital goods sector is a pointer towards slow growth of investment,which is crucial for sustained economic growth.8221; Fitch Ratings director Devendra Kumar Pant said.

As per the data,offtake of capital goods grew by just 5.9 per cent during the month under review as compared to 15.8 per cent.

Intermediate goods also registered a sharp decline in growth to 0.9 per cent in May from 11.7 per cent in the corresponding period.

Overall consumer goods have shown lower growth of 5.4 per cent as against 7.4 per cent in May 2010.

8220;Given the persistence of inflation coupled with low productivity,this reaffirms a continuing moderation in the economy,8221; Deloitte Haskins amp; Sells director Anis Chakravarty said.

He said capacity constraints and high input cost continues to affect the manufacturing sector.

8220;The resolute stand of the RBI in addressing inflation is also being felt8230; It is likely that this moderation will continue for the coming months and some improvement will be felt only around the third quarter of the current fiscal,8221; Chakravarty said.

Factory output has been sluggish during the recent months as per the old series but the numbers have been better according to the revised series.

As per the new series launched in April this year,IIP stood at 5.7 per cent in April and 8.8 per cent in March.

Industry grew by 7.5 per cent in January. In December last year,the growth was 8.1 per cent,while it was 6.4 per cent in November,11.4 per cent in October,6.2 per cent in September and 4.5 per cent in August.

8220;We expect the manufacturing sector to display sluggish growth in the coming months,despite the boost provided by continuing high growth of merchandise exports,8221; ICRA economist Aditi Nayar said.

She said headline inflation for June 2011 is expected to rise to 9.7 per cent and this may lead to RBI increasing rates by 25 basis points in the July 26 review.