Factory output declined by 3.5 per cent in March, a sharp fall from the 4.1 per cent growth recorded in February and 9.4 per cent growth a year ago, according to official data released on Friday. The disappointing news came as a jolt to the stock market. The benchmark Sensex ended lower by 127 points — falling for the fourth straight day. A slowing economy and renewed concerns over recovery in the Euro zone also cast a shadow on the markets.
RATE CUTS
The weaker than anticipated industrial performance, coupled with stable core inflation, has raised the probability of further rate cuts by the Reserve Bank of India (RBI), say economy watchers.
The RBI had sprung a surprise in March with a 50 basis point cut in the repo rate. Many economists see a gradual pick-up in industrial activity only in the second half of this year, once the repo rate cuts get transmitted into the system.
For the full 2011-12, the index of industrial production (IIP) grew just 2.8 per cent, compared with 8.3 per cent last year. This weak performance prompted India Inc to renew its demand for further rate cuts by the RBI.
CAPITAL GOODS PLUNGE
The weakness in headline IIP was driven by the sharp fall in capital goods (-21.3 per cent) in March due to the weak investment climate. For the entire 2011-12, capital goods contracted 4.1 per cent, vis-à-vis 14.8 per cent growth the previous year.
Both mining and manufacturing did indifferently in March. While manufacturing output contracted 4.4 per cent (11 per cent growth), mining output fell 1.3 per cent (0.4 per cent growth).
Consumer goods output grew a modest 0.7 per cent (13.2 per cent).
FM DISAPPOINTED
Reacting to the March IIP numbers, the Finance Minister, Mr Pranab Mukherjee, said the figures were disappointing. He said the anticipated revival of manufacturing in the last quarter of 2011-12 had not materialised.
Mr Mukherjee said domestic investments remained frail. Uncertainty in the global economy coupled with monetary tightening over the last two years has impacted investment recovery, he told reporters.
Although the RBI reversed its monetary stance in the last policy announcement, it will take some time for interest rates to come down, he added.
The Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia, said the solution lies in focusing on project execution, not in providing a stimulus.
He said he did not think the Eurozone problems could be linked to the negative IIP, adding, however, that: “It (Euro zone) is clearly an important factor which is depressing investment sentiment”