IIP Growth Disappointing; May Affect Q2 GDP: FM

Disappointed with the factory output growth of 4.1 per cent in August, Finance Minister Pranab Mukherjee said on Wednesday it may impact India's second (July-September) quarter GDP.

"It (IIP) is not encouraging. It is a bit disappointing and it may affect the GDP of second quarter," he told reporters here.

The factory output, as measured by the Index of Industrial production (IIP), was 4.1 per cent in August, lower than 4.5 per cent in the same month last year.

Mukherjee, however, declined to comment on the extent to which the subdued IIP numbers will impact the economic growth during the July-September quarter (Q2) of this fiscal.

"To what extent it (slowdown in IIP) would affect, it would be premature to make any assessment," Mukherjee added.

India's economic growth fell to 18-month low at 7.7 per cent in the April-June period (Q1). The government expects the country to grow by around 8.5 per cent during 2011-12.

As per the official data released, the IIP growth during the April-August is 5.6 per cent, as against 8.7 per cent in the corresponding period of 2010-11.

However, July IIP growth has been revised upwards from 3.3 per cent to 3.8 per cent.

"The silver lining is that IIP has improved from July figure... But compared to corresponding period of previous year, it is quite low," Mukherjee added.

Meanwhile, economic affairs secretary R Gopalan said that the slowdown in the IIP numbers is a matter of concern but expressed confidence that the figures would improve from here.

"It is a cause of concern. But as we go along, if you see the previous year, always second half IIP numbers have been good," he said.

In August, the manufacturing sector -- which constitutes over 75 per cent of the index -- grew by 4.5 per cent, as against 4.7 per cent in the same month last year.

RBI Pause Unlikely
However, it is unlikely that the RBI will pause with its rate hike strategy on account of the slowdown in industrial output growth. The RBI has already hiked rates 12 times since March, 2010, to control inflation, which stood at 9.8 per cent in August.

Even RBI Deputy Governor Subir Gokarn said the central bank's decision to further hike rates will depend on the inflationary situation.

The economic slowdown has impacted countries globally, especially Western nations. But India is still somewhat better off, with the country growing by 7.7 per cent in the April-June period. The government expects economic growth to be around 8.5 per cent in the current fiscal.

Even though there has been a demand slowdown in the US and Europe, India's exports maintained their growth momentum during April-September, increasing by 52.1 per cent to $160 billion.

Monetary Tightening Affecting Growth: Ficci
Reacting to the IIP figures, industry chamber Ficci said that investment demand has been affected in the last few months on account of monetary tightening measures.

"We expect the growth in industrial sector and investments to be low in coming months also, as the impact of the rising cost of credit would continue," Ficci said.

During August, 2011, electricity production exhibited a sharp improvement, growing by 9.5 per cent, as against a mere 1 per cent growth in August, 2010.

On the other hand, consumer durables output growth slowed to 4.6 per cent in August, compared to a growth of 8.1 per cent in the previous year.

FMCG production also grew by 2.9 per cent in August, compared to growth of 1.8 per cent in the same month last year.

Growth in overall output of consumer goods also slowed down to 3.7 per cent in August this year, compared to a growth of 4.6 per cent in August, 2010.

(PTI)