IIP growth just 0.1% in July; FM says data disappointing

* Index shows country losing appetite for capital goods

Industrial output continues to stay flat,with the IIP data showing a rise of just 0.1 per cent in July from a year earlier. While there is growth in consumer durables,this has been weighed down by a marked contraction in manufacturing,mining and capital goods production.

The downturn in the manufacturing sector output,which constitutes about 76 per cent of the index of industrial production,along with the continuing declining trend in key segments such as capital goods and intermediate goods points to a moderation in consumption demand as well as declining investment appetite.

With an immediate rebound in manufacturing activity unlikely in the absence of efforts to address structural deficiencies,the corporate sector has renewed its clamour for at least a 50 basis point cut in key interest rates when the central bank goes in for its policy review next week. The stock markets,though,shrugged off the flat IIP number and clocked gains on Wednesday,with the benchmark 30-share BSE Sensex reclaiming the 18,000-mark after six months.

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Terming the data as disappointing,Finance Minister P Chidambaram said the government is actively engaged with the industry on ways to tide over the constraints that are holding up industrial production. These IIP estimates reveal that the performance of the economy continues to be disappointing… While the General Index for July 2012 (over July 2011) is positive at 0.1,it is too early to claim that this is a sign of a turnaround, he said in a statement.

On a sequential basis though,Julys growth at 0.1 per cent is an improvement over the 1.8 per cent contraction recorded in June. According to the figures released by the Ministry of Statistics and Programme Implementation on Wednesday,the IIP,during the April-July period,shrank by 0.1 per cent.

During the latest reported month,the manufacturing sector declined by 0.2 per cent as against a growth of 3.1 per cent during the month a year ago,while the mining sector contracted 0.7 per cent as against a growth of 0.7 per cent. Electricity generation grew by just 2.8 per cent during July as against 13.1 per cent during this period last year.

What has added to the worry is the continuing decline in capital goods and intermediate goods along with falling production in consumer goods and durables,indicating a moderation in consumption demand and declining investments. Capital goods,which reflect the overall investment sentiment,declined by 5 per cent as against a contraction of 13.7 per cent during the same period a year ago while intermediate goods,used as inputs for producing other goods,declined 1.1 per cent as against a contraction of 0.1 per cent during the year ago period.