Poor factory output raises clamour for rate cut

K.R. Srivats

http://www.thehindubusinessline.com/industry-and-economy/economy/article3518904.ece?homepage=true

New Delhi, June 12: 

Factory output growth in April came in at a near-zero level of 0.1 per cent, confirming an investment slowdown in the economy.

This set off a clamour for the Reserve Bank of India to further cut policy rates to boost the sagging investment sentiment.

The Index of Industrial Production for April grew at a much lower rate than the 5.3 per cent and 13.1 per cent increases recorded in the same month the previous two years. However, it is better than the March performance when IIP contracted by 3.5 per cent.

DIP IN MINING

April's industrial performance was weighed down by a 3.1 per cent contraction in mining and a sharp slide in manufacturing, which recorded a modest 0.1 per cent growth. Electricity generation was up 4.6 per cent, but lower than the 6.5 per cent growth seen in same month last year

On Tuesday, the benchmark Sensex jumped 195 points as the weak IIP data raised hopes of an early policy rate cut action by the RBI. All eyes are now on the central bank, which is slated to hold a mid-quarter Monetary Policy Review meet on June 18.

Terming the weak industrial production performance for April as “disappointing”, the Finance Minister, Mr Pranab Mukherjee, said that steps need to be taken to send positive signals. He noted that negative sentiments for investments still persist and that industry had not picked momentum. Mr Mukherjee was most disappointed about the performance of capital goods, whose output declined by 16.3 per cent.

Economy watchers see the Finance Minister's remarks about the need for further steps as an indication to some monetary easing by the RBI in the coming days.

On Monday, Mr Mukherjee had said that the second round of global uncertainty and slowdown had rather quickly followed the previous one. Practically, there was no headroom for running a proactive fiscal policy, he had said.

Following the weak IIP data for April, India Inc was quick to seek government action to revive industrial growth.

The Confederation of Indian Industry (CII) Director-General, Mr Chandrajit Bannerjee, urged the RBI to reduce both repo rate and cash reserve ratio by 100 basis points to revive investment sentiment and infuse liquidity in the system.

The FICCI President, Mr R V. Kanoria, said that RBI must cut down interest rates by at least 50 basis points in its upcoming monetary policy review.

INDUSTRY GROWTH UP

Meanwhile, the Central Statistics Office has revised upward the industrial growth estimate for 2011-12 to 2.8 per cent from 2.4 per cent earlier.

Some economy watchers said caution should be exercised in interpreting April factory output data. For, according to them, there is tendency for corporates to slowdown in April, the first month of the financial year, after aggressively booking production in March to boost their year-end performance.

krsrivats@thehindu.co.in