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April Industrial Output Slows To 0.1% Y/Y

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Industrial production growth rate slowed down sharply to 0.1 per cent in April due to contraction in capital goods and dip in manufacturing output, reflecting the sluggish state of the economy that may prompt RBI to cut lending rates.

Growth in factory output, as measured by the Index of Industrial Production (IIP), was 5.3 per cent in April last year.

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, according to the official data released today.

The capital goods output declined by 16.3 per cent as against a growth of 6.6 per cent in the same month last year.

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 is likely to put pressure on the Reserve Bank to cut lending rates at its mid-quarterly review on June 18.

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.

In all, 12 of the 22 industry groups in the manufacturing sector have shown positive growth during April as compared to the same month a year ago.

Market Reaction
Markets barely reacted to the industrial output data, given widespread expectations for a weak expansion.

The rupee was in range at 56 to the dollar, little changed from before the data. The benchmark 10-year bond yield was also flat at 8.31 per cent from beforehand.

Standard & Poor's said on Monday that India could become the first of the so-called BRIC economies to lose its investment-grade status, less than two months after cutting its rating outlook for the country.

The Reserve Bank of India is widely expected to lower its main lending rate by 25 basis points (bps) to 7.75 percent on June 18 when it reviews its policy for the first time after cutting rates by a sharper-than-expected 50 bps in April.

Falling global oil prices as well as declining core inflation and growth in India give the central bank room to adjust interest rates, a deputy governor said last week.

India's economy expanded 5.3 per cent in the March quarter, its slowest pace in nine years, on a combination of mounting global uncertainties, muddled policies, high inflation and steep interest rates at home.

Manufacturing sector kept up its steady expansion in May, driven by rising output, a business survey showed.

Car sales rose just 2.8 per cent in May from a year earlier as a hike in excise duty on the vehicles hit demand.

Headline inflation accelerated in April to 7.23 per cent as price pressures for food, fuel and manufactured items all picked up.

Consumer price inflation in April stood at 10.36 per cent, compared with 9.47 per cent in March.