Industrial growth slumps to 5.6%
INDIA’S industrial output growth plummeted to a 14-month low in August, much below analysts’ estimates, indicating a possible slowdown in growth momentum.
By ET Bureau |
NEW DELHI: INDIA’S industrial output growth plummeted to a 14-month low in August, much below analysts’ estimates, indicating a possible slowdown in growth momentum.
The widely tracked index of industrial production for the month rose 5.6%, sharply lower from an upwardly revised 15.2% in July, as the volatile index of capital goods contracted by a massive 41%.
“I am disappointed over the IIP data. It is not up to our expectations,” finance minister Pranab Mukherjee said after the data was released on Tuesday. The manufacturing sector, which has the largest weight in the index, grew a mere 5.9%, while mining grew 7% and electricity generation just 1%.
“The index contracting shows that the growth momentum might be fading,” said Sunil Sinha, head of research at rating agency Crisil. The lower-than-expected IIP number for the month could put pressure on the Reserve Bank of India’s monetary tightening plans, despite sticky inflation numbers. Food inflation stood at 16.24% in the week ended September 25. Most analysts, however, expect the central bank to raise rates further. “We believe the RBI will hike policy rates by another 75-100 basis points by end-June 2011,” said Goldman Sachs economist Tushar Poddar in a research note. “WPI inflation numbers for September will be released on October 14, and we expect it to remain elevated at 8.6%,” he said.
Equities ended on a weak note on Tuesday. The Sensex closed 0.67% down at 20,203, led by a sharp decline in capital goods stocks. The August IIP numbers caught analysts off guard for the second month running. An ET poll of 10 economists had predicted a 9.7% growth in factory output in August. “The volatility in data is a bit of a concern,” said Citi economist Rohini Malkani in a research note. The report chose to focus on the 3-month average to conclude that expectations of 8.8% economic growth are realistic. The large swings in the IIP numbers are mostly due to the volatile capital goods index that has about 10% weight in the index. The index for capital goods contracted 2.6% in August from a year ago after expanding 72% in July.
“Capital goods is the decider whether we get an IIP growth above or below 10%,” said Jahangir Aziz, chief economist at JP Morgan. Fast moving consumer goods sector also continues to remain a concern with a 1.2% contraction in August. ”Rising FMCG equity prices should not drive our view about non-durables production,“ he said.
The chief statistician of India, TCA Anant, agreed that the capital goods index was prone to volatility, but said it was a characteristic of the index and that the results should be interpreted keeping this in mind.
Consumer durables segment continued to coast along strongly, indicating that growth was still not broad-based.
The widely tracked index of industrial production for the month rose 5.6%, sharply lower from an upwardly revised 15.2% in July, as the volatile index of capital goods contracted by a massive 41%.
“I am disappointed over the IIP data. It is not up to our expectations,” finance minister Pranab Mukherjee said after the data was released on Tuesday. The manufacturing sector, which has the largest weight in the index, grew a mere 5.9%, while mining grew 7% and electricity generation just 1%.
“The index contracting shows that the growth momentum might be fading,” said Sunil Sinha, head of research at rating agency Crisil. The lower-than-expected IIP number for the month could put pressure on the Reserve Bank of India’s monetary tightening plans, despite sticky inflation numbers. Food inflation stood at 16.24% in the week ended September 25. Most analysts, however, expect the central bank to raise rates further. “We believe the RBI will hike policy rates by another 75-100 basis points by end-June 2011,” said Goldman Sachs economist Tushar Poddar in a research note. “WPI inflation numbers for September will be released on October 14, and we expect it to remain elevated at 8.6%,” he said.
Equities ended on a weak note on Tuesday. The Sensex closed 0.67% down at 20,203, led by a sharp decline in capital goods stocks. The August IIP numbers caught analysts off guard for the second month running. An ET poll of 10 economists had predicted a 9.7% growth in factory output in August. “The volatility in data is a bit of a concern,” said Citi economist Rohini Malkani in a research note. The report chose to focus on the 3-month average to conclude that expectations of 8.8% economic growth are realistic. The large swings in the IIP numbers are mostly due to the volatile capital goods index that has about 10% weight in the index. The index for capital goods contracted 2.6% in August from a year ago after expanding 72% in July.
“Capital goods is the decider whether we get an IIP growth above or below 10%,” said Jahangir Aziz, chief economist at JP Morgan. Fast moving consumer goods sector also continues to remain a concern with a 1.2% contraction in August. ”Rising FMCG equity prices should not drive our view about non-durables production,“ he said.
ADVERTISEMENT
The chief statistician of India, TCA Anant, agreed that the capital goods index was prone to volatility, but said it was a characteristic of the index and that the results should be interpreted keeping this in mind.
Consumer durables segment continued to coast along strongly, indicating that growth was still not broad-based.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
