Factory output grew 2.4 per cent in May, much lower than the growth of 6.2 per cent in the same month last year.
The silver lining was that the latest index of industrial production (IIP) growth performance was better than the revised (-) 0.9 per cent for April and (-) 3.2 per cent level of March. The Central Statistics Office had earlier pegged the April industrial growth at a near-zero level of 0.1 per cent.
However, stock markets were not enthused by the industrial output performance for May. The benchmark Sensex, which shrugged off the IIP numbers, was weighed down by Infosys coming up with weak outlook and lower revenue guidance in dollar terms for 2012-13.
But the tepid industrial growth did prompt apex industry chambers to reiterate their demand for rate cuts ranging from 50-100 basis points in the upcoming RBI monetary review meeting on July 31.
The better-than-expected industrial growth in May was driven by some rebound in manufacturing, which grew 2.5 per cent against 0.1 per cent in April. Manufacturing has a weightage of nearly 75 per cent in the IIP.
The rise in industrial production in May vis-à-vis April is a good thing, but it does not signal any robust recovery, said Mr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission.
“The good news is that the bad news is not continuing. But I don’t think we have enough good news,” he said and added that although the May numbers indicated a halt to the growth deceleration trend, the current growth numbers were not acceptable.
Mining continued to be weak with output down 0.9 per cent in May. Electricity generation grew 5.9 per cent, lower than the 10.3 per cent growth in May last.
In use-based classification, capital goods output declined 7.7 per cent in May against 6.2 per cent growth in same month last year. Consumer durables saw a robust growth of 9.3 per cent (5.1 per cent).
The Economic Affairs Secretary, Mr R. Gopalan, said IIP numbers in May had improved compared with the previous month.
“Electricity machinery production is showing decline. (Government will be studying) if this is due to imported equipment,” he said.
Many economists feel that the RBI will stand still (not alter policy rates) on July 31 in the wake of increased inflationary expectations.
Also, the fact that retail inflation has been trending at over 10 per cent in recent months may compel the RBI to refrain from resorting to policy rate cuts, they said.