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Industrial growth dips to 0.1 pc; may prompt RBI to cut rates

June 12
03:23 2012

NEW DELHI: A day after Standard and Poor’s warned that India may lose investment grade rating, its annual industrial growth rate slumped to 0.1 per cent in April, increasing chances that the Reserve Bank may cut interest rates next week to boost the sagging economy.

As many as 10 of the 22 segments, including capital goods and mining, posted negative growth as the country grapples with global slowdown and subdued domestic demand. The IIP had grown by 5.3 per cent in April 2011.

However, offering some consolation, the data for the month under review was positive, as against 3.2 per cent drop logged in March.

“I am disappointed. Industry has not yet picked up.

Negative sentiments are there. We have to take steps to give positive signals,” Finance Minister Pranab Mukherjee told reporters here.

The capital goods output declined by a whopping 16.3 per cent in April as against a growth of 6.6 per cent in the same month last year, clearly showing that entrepreneurs are losing appetite for new investments.

Mining output contracted by 3.1 per cent in April, as against growth of 1.6 per cent in the same month a year ago.

The slowdown in industrial production will surely weigh on the Reserve Bank to cut lending rates at its mid-quarterly review on June 18.

The IIP data is yet another bad news for the economy.

Yesterday, global agency S&P put India on notice for a possible downgrade of its sovereign credit rating below the investment grade.

However, the stock market ignored both the S&P warning and dismal industrial performance amidst expectation of a rate cut by the Reserve Bank.

The BSE 30-scrip index, Sensex, was trading higher post the IIP data release. . Commenting on the observations of S&P, Mukherjee said, “…from their point of view they have expressed their apprehension…We have taken note of it and…we shall have to sort out our own problems and for that we are taking necessary steps.”

He further said, “The announcements made in the Budget will take at least two to three months to show impact…which could not be seen in April”.

The manufacturing sector, which constitutes over 75 per cent of the index, grew barely 0.1 per cent, as against 5.7 per cent in April 2011, the data said.

However, consumer goods production showed a faster growth rate of 5.2 per cent in April, compared to 3.2 per cent in the same month last year.

The consumer durables segment also expanded by 5 per cent in April, as against 1.6 per cent in the same month last year.

Power generation witnessed a slower growth of 4.6 per cent during April, compared to 6.5 per cent in the same month a year ago.

According to Crisil chief economist DK Joshi, “The numbers are pointing towards continued deceleration. The figures are much lower than expected…RBI could cut rates by 25 basis points in forthcoming policy review.”

Expressing similar opinion, SBI economist Brinda Jagirdar said, “These numbers are even weaker than anticipated. This is the trend which is seen in the last some months…It indicates that the investment pipeline is dry.” -PTI



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