December IIP contracts at 0.6%, manufacturing growth worst since September

NEW DELHI: The Index of Industrial Production (IIP) for the month of December contracted at (-) 0.6% versus (-)0.1% in the month of November. This is way below an ET Now poll estimate of 1.3%. According to the data, the IIP in the April-December period now stands at 0.7%.

The manufacturing sector output contracted at (-) 0.7% versus a growth of 0.3% in November. This is the worst output growth since September.

The consumer goods sector output contracted at (-)4.2% versus a growth of 1% in November. Factory output has been hurt by relatively weak global trade, especially from Europe, India's largest trade partner, with the debt-ravaged euro zone economy expected to contract again this year.

Jyotinder Kaur, Economist, HDFC Bank feels that this is another indication that while things could have bottomed out, recovery is considerably far away. "High inflation is impinging on purchasing power and so industrial growth is slowing. Government is clamping down on expenditure which is certainly not helping growth. So all this is not a pretty picture. Despite incremental efforts we are still staring at weak growth print. We expect rate cut in March as growth is consistently surprising on the downside while pace of CPI (consumer price inflation) has stabilised," Kaur said.

Sujan Hajra, Chief Economist, Anand Rathi opined that meaningful industrial recovery is eluding. "What is clear is that any meaningful industrial recovery is eluding us. Demand destruction is better entrenched than we thought. This, with FY13 advance GDP estimates, clouds the outlook for FY14 growth. We now think that FY14 growth may be between 5-6 percent," Hajra said.

"We stick to our call that the RBI will lower the repo rate by 75 basis points in the rest of 2013," Hajra added.

Meanwhile, ahead of the January inflation readings Reserve Bank Governor D Subbarao had said the price rise index which slowed to a three-year low of 7.18 per cent in December, is "still high."

"If you take the macroeconomic context today, you find that growth has moderated, inflation has come off the peak, but even at 7 plus per cent, it is still high," he said.

Finance minister P Chidambaram is of the opinion that the upturn in the economy has started with indications of green shoots in the second half of this fiscal. He said more measures in the next few weeks and the next fiscal could help propel the country back to the 8% growth path.