India’s September IIP growth slows to 2 year low

Date: 11-11-2011

India’s Index of Industrial Production (IIP) for month of September 2011 grew at its slowest pace in last two years, confirming the slowdown in economic activities because of the high inflation and continuous hike in Reserve Bank of India’s (RBI’s) key policy rates. As per the data released by the Ministry of Statistics & Programme Implementation, growth in industrial production measured by the IIP stood at 1.9% in September 2011 compared to 6.1% in September 2010. During the first half of current financial year, IIP growth stood at 5% compared to 8.2% in the April to September 2010.

The Indices for the Mining, Manufacturing and Electricity sectors for the month of September 2011 stood at 111.0, 175.7 and 144.1 respectively, with the corresponding growth rates of (-)5.6%, 2.1% and 9.0% as compared to September 2010. The cumulative growth in the three sectors during April-September, 2011-12 over the corresponding period of 2010-11 has been (-)1.0%, 5.4% and 9.4% respectively, which moved the overall growth in the General Index to 5.0%.
During September, in terms of industries, 15 out of the 22 industry groups in the manufacturing sector have shown positive growth as compared to the corresponding month of the previous year. The industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest growth of 25.0%, followed by 19.0% in ‘Other transport equipment’ and 16.6% in ‘Office, accounting & computing machinery’. On the other hand, the industry group ‘Electrical machinery & apparatus n.e.c.’ has shown a negative growth of 27.7% followed by 8.2% in ‘Furniture; manufacturing n.e.c.’ and 8.1% in ‘Wearing apparel; dressing and dyeing of fur’.

As per Use-based classification, the growth rates in September 2011 over September 2010 was 4.5% in Basic goods, (-) 6.8% in Capital goods and 1.5% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 8.7% and (-) 1.3% respectively, with the overall growth in Consumer goods being 3.5%.

Some of the important items of capital goods showed high negative growth during the current month,contributing to the low growth of the overall index for the month include ‘Cement Machinery’ (-) 70.4%, ‘Sugar Machinery’ (-) 63.8%, ‘Cable, Rubber Insulated’ (-) 45.3% and ‘Relays, Fuses and Switchgears’ [(-) 30.0%]. However, some important items of the capital goods are also showing significant growth. These are: ‘Conductor, Aluminium’ (45.0%), ‘Earth Moving Machinery’ (44.9%), ‘X-ray equipment’ (35.0%) and ‘Tractors’ (30.4%).

The other important items showing growth during the month are: ‘Fruit Pulp’ (90.6%), ‘Paraxylene’ (64.0%), ‘Stainless/ alloy steel’ (63.3%), ‘Woollen Carpets’ (61.9%), ‘Linear low density polyethylene’ (58.9%), ‘Tanned or Chrome Skins and Leathers’ (58.1%), ‘Steel Castings’ (48.0%), ‘Petroleum Coke’ (44.6%), ‘Scooter and Mopeds’ (33.0%), ‘Marble Tiles/Slabs’ (32.3%), ‘Polythene Bags including Hdpe & Ldpe Bags’ (31.5%) and ‘Telephone Instruments Including Mobile Phone And Accessories’ (31.1%).

Meanwhile the government ha also revised the IIP growth figures for August. After the downward revision it stood at 3.6% from the provisional estimate of 4.1%. This downward revision has raised concern for policy makers and industry. Experts are of the view that IIP growth may further decrease as the global economic condition remains unfavorable , while high inflation had made RBI to maintain its anti-inflationary stance.

However, the RBI expects inflation to start subsiding from December and to moderate to 7% by the end of the March 2012, which may help it to take a pause in rate tightening cycle after increasing interest rates for 13 times since March 2010 to control headline inflation which is hovering above 9% for nearly a year.