Industrial output slowed as consumer goods firm reported declined in production and growth in capital goods slowed down in May as against the stellar growth of industrial sector the previous month, according to official data released on Friday. Overall industrial output grew 2.7 per cent in May over the same month last year. This was lower than the 4.1 per cent growth clocked in April.
Industrial output as measured by Index of Industrial Production (IIP) was disappointing after the staggering rise in eight core industries released a fortnight ago. The index of eight core industries, which constitutes 38 per cent of the IIP, rose to a six month high of 6.7 per cent in May.
Even though IIP was higher than the growth recorded last year, the sector still seems jittery and presents a cause of concern for the government which is trying hard to work on the reform agenda to keep investor interest in India. While the IIP started the fiscal at a good note, the government will have to clear some major legislation in the monsoon session to keep the momentum going.
All three major sectors in IIP—mining, manufacturing and electricity— rose in May. The mining sector saw a rise in output to 2.8 per cent as against 0.6 per cent growth in April, while manufacturing sector grew at a slower pace at 2.2 per cent. Electricity generation, on the other hand, registered a rise of 6 per cent.
The cumulative growth in these three sectors during April-May 2015-16 over the corresponding period of 2014-15 has been 1.5 per cent, 3.2 per cent and 2.8 per cent, respectively.
In terms of industries, 12 of the 22 industry groups in the manufacturing sector have shown positive growth during the month.
As per use-based classification, basic goods output was up 6.4 per cent, capital goods expanded by just 1.8 per cent (down from a robust 11.1 per cent growth in April), intermediate goods also expanded by 1.2 per cent but at a slower pace than April.
The fall in capital goods output which is a lead indicator of business activity picking in the near term shows business sentiment in the manufacturing sector is not yet strong enough to make firms to add machines to their factories.
Within the consumer goods basket, consumer durable and non-durable both declined 3.9 per cent and 0.1 per cent respectively, with the overall consumer goods declining 1.6 per cent to the lowest level in four months.
While India has been struggling with high frequency macroeconomic data, IMF retained its forecast for 7.5 per cent growth for the current fiscal in its latest release of World Economic Outlook on Thursday.
With the health of the industrial sector barely rising and monsoons better than expected, RBI has room to cut rates in the next meeting in August.