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India's industrial production growth dipped to 20 months low of 3.3% during July 2011 from 8.8% growth recorded in June. The sharp fall in the manufacturing sectors output during July 2011 heavily weighed up on IIP growth, despite slight rebound in mining growth and record electricity generation growth. As per the sectoral classification, the electricity generation growth surged to record high of the current base at 13.1% during July 2011, but the manufacturing growth dipped to 2.3% from 10.0% in June. Meanwhile, the mining sector growth improved to seven months high of 2.8% during July 2011, after remaining at sub 2% level for last 6 months.
The industrial production growth for July 2011 was also sharply below economists expectations. As per the Capital Markets poll of economists, the industrial growth for July 2011 was projected at 6.2%. The economists responding to the poll had forecasted the IIP growth in the wide range of 4.0% to 7.7% for July 2011. The median of various IIP growth forecast stood at 6.2%, while the average was lower at 6.1%.
As per the use based classification, the basic goods posted the double digit growth of 10.1% with robust contribution from electricity generation. But, the capital goods sector recorded the steep fall of 15.2%, while the intermediate goods production also dipped 1.1% in July 2011. However, the production growth of consumer goods rebounded to 6.2% during July 2011. Among the consumer goods, the output of consumer durables and consumer non-durables moved up 8.6% and 4.1%, respectively during July 2011.
In terms of industries, fifteen (15) out of the twenty two (22) industry groups in the manufacturing sector have shown positive growth during the month of July 2011 as compared to the corresponding month of the previous year. The manufacturing index contributed 185 bps or 56.4% (with new 2004-05 base) of the 3.28% growth in industrial production during July 2011. The mining index contributed 30 bps or 9.3%, while electricity garnered 113 bps or 34.3% to the overall growth in Industrial production during July 2011.
As per the use-based classification, Basic goods had a largest contribution of 387 bps (117.8%) to 3.28% growth in the industrial production during July 2011. The consumer durable had a contribution of 126 bps, while consumer non-durable had a share of 70 in IIP Growth bps during July 2011. However, capital goods had a negative contribution of 239 bps (-72.81%) to the growth, while intermediate goods also contributed negatively by 15 bps (4.7%) to the growth.
Industrial production in July 2011, grew way below market expectations, on steeper fall in capital goods and sluggish production of intermediate goods. This coupled with low single digit growth in many 2 digit level industries dragged down the manufacturing sector growth to mere 2.3% in July 2011. Add to this, the fall in natural gas production has restricted the growth in mining and quarrying sector to mere 2.8% in July 2011. On the positive side, the growth in electricity sector recorded healthy 13.1% growth in July 2011.
The massive 300 basis points rise in repo rates over the last 18 months have started affecting the pace of growth in industrial sector in general and rate sensitive sectors in particular. The World economic growth has turned sluggish on contagion effect of debt problems of select EU countries and high unemployment levels in advanced markets. In these circumstances, some corners hope for pause in the rate hikes by RBI. But RBI has, time and again, made it clear that it has inflation control as the singular focus, and will pursue the same even if it meant compromising on short term growth.
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