IIP falls to -3.5% in March 2012

The March IIP numbers, which contracted to -3.5%, has sent tremors across the Indian Economy. Although, economists were not expecting a good number, most were working with a 1% industrial growth assumption. The March IIP numbers are against the February numbers of 4.1%.

The IIP number clearly indicates that growth has not bottomed out and there could be surprises in store. C Rangarajan, Chairman of PMEAC has termed the IIP number as ‘very disappointing’. Given the dismal numbers, the GDP growth numbers will also need a downward revision.

The break up of the IIP shows that the capital goods sector has seen a sharp decline of -21.3% and manufacturing has also declined by -4.4%. These two numbers are a dampener on sentiment as they indicate a slowdown in investment and output and are likely to affect future growth. The capital goods sector had seen a growth of 10.6% in February and manufacturing had grown by 4% in the same month.

RBI’s stance on further chopping the interest rates is eyed as inflation will play a major role in that decision. Also, current account deficit of 4% may affect the central bank’s key decision.