India's November industrial output (IIP) falls, may prompt RBI rate cut: govt

Jan 11 2013, 13:03 IST
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India's Nov industrial output contracts 0.1 pct year on year: govt. (Reuters) India's Nov industrial output contracts 0.1 pct year on year: govt. (Reuters)
SummaryDashing hopes of a rebound, the industrial output contracted to a four-month low.

Dashing hopes of a rebound, the industrial output contracted to a four-month low of 0.1 per cent in November due to poor performance of manufacturing and mining sectors and decline in production of capital goods.

The industrial output, as measured by the Index of Industrial Production (IIP) dipped from a robust 8.3 per cent in October. The decline may prompt the Reserve Bank of India (RBI) to consider rate cut in its quarterly review on January 29 to boost growth.

The industrial output had grown by 6 per cent in November, 2011. Meanwhile, in July, 2012 it showed a contraction of 0.1 per cent.

Factory output growth was 1 per cent in April-November period this fiscal, down from 3.8 per cent in the same period in 2011-12, according to official data released here today.

Meanwhile, the growth in the industrial production during October last year was revised upward to 8.3 per cent, from earlier provisional estimates of 8.2 per cent released last month -- highest in previous 16 month.

The manufacturing sector, which constitutes over 75 per cent of the index, grew by meagre 0.3 per cent in November in 2012, as against a 6.6 per cent in 2011.

The output of the key sector remained low at one per cent in April-November last year as against 4.2 per cent growth in the same period in 2011.

The mining output in November contracted by 5.5 per cent compared to a decline in production by 3.5 per cent in same month in 2011. The sector's production in April-November also declined by 1.5 per cent, against a contraction of 2.4 per cent in the year-ago period.

Capital goods output declined by 7.7 per cent in November, as against a contraction of 4.7 per cent in same month in 2011.

The output of capital goods also contracted in the April-November period by 11.1 per cent, as against a dip in production by 0.1 per cent in the 2011-12 period.

Power generation grew by 2.4 per cent in November, as against 14.6 per cent in same month in 2011. The electricity generation in the April-November period this fiscal is 4.4 per cent, as against 9.5 per cent in a year-ago period.

Consumer goods output growth was 1 per cent in November as against 12.8 per cent. In the April-November period of this fiscal, the growth in consumer goods was 3.8 per cent as compared to 5 per cent in the same period of 2011-12.

The growth in output of consumer durables is 1.9 per cent in November, as compared to double digit growth of 10.4 per cent in the same month in 2011. The growth in the output of these goods remained flat at 5.2 per cent in April-November this fiscal.

The consumer non-durables output growth was 0.3 per cent in November, as against a 15 per cent in the year-ago period.

This segment grew by 2.5 per cent in the eight month period of this fiscal, as against 4.9 per cent in the same period of 2011-12.

The basic goods production growth was 1.7 per cent in November, compared to 6.5 per cent the year-ago period.

During the April-November period, this segment recorded a growth of 2.8 per cent, compared to 6.3 per cent in the first eight months of last fiscal.

The intermediate goods output declined by 1.1 per cent in November as compared to a growth of 1.3 per cent in the same month in 2011. During the April-November period this fiscal, growth in the output of these goods was 1.8 per cent compared to a contraction of 0.6 per cent in the eight month period a year ago.

In terms of industries, 13 out of 22 groups in the manufacturing sector have shown negative growth in November, 2012 as compared to the same month in 2011.

The industry group 'Publishing, printing and reproduction of recorded media' has shown the highest contraction of 22.1 per cent, followed by 21.8 per cent in `Office, accounting and computing machinery' and 18.9 per cent in `Wood and products of wood & cork except furniture.

On the other hand, the industry group 'Electrical machinery and apparatus' has shown a positive growth of 25.1 per cent, followed by 15.7 per cent in 'Luggage, handbags, saddlery, harness and footwear; tanning and dressing of leather products' and 15.3 per cent in 'Radio, TV and communication equipment and apparatus'.

India's industrial output contracts

(Reuters) India's industrial output (Index of Industrial Production – IIP) shrank in November after a spurt the previous month, denting hopes of a recovery in economic growth and strengthening the case for an interest rate cut later this month.

The index of industrial production fell 0.1 percent annually in November, data released by the Central Statistics Office showed on Friday, compared with revised growth of 8.3 percent a month ago.

The outturn was even worse than the 0.7 percent growth a Reuters' poll of analysts had predicted for November.

Output was depressed by weak investments as well as the Diwali holiday, which was in November last year, whereas in 2011 it fell in October. Diwali is one the biggest Hindu festivals in India, with many factories shutting for several days.

"The correction in the November headline (industrial production) was largely priced in on passage of festive demand and manufacturers' possibly drawing down on inventories rather than stepping up production towards end-2012," said Radhika Rao, economist at Forecast Pte, Singapore.

Asia's third largest economy is on track to expand at its slowest pace in a decade for the fiscal year that ends in March, weighed down by a combination of weak investment and consumer demand.

December trade data expected to be released later on Friday could add to the misery, as exports, which make up around one-fifth of the economy, have fallen against year ago in the previous seven months.

GDP growth that once looked set to hit double-digits has been stuck below 6 percent for the past three quarters. The slowdown is worrying for the government as it prepares for a series of state elections and a general election due in 2014.

Previously pilloried for his government's inaction as the economy slowed, Prime Minister Manmohan Singh launched a series of reforms late last year to salvage a reputation made as the architect of India's economic liberalization in 1991.

On Wednesday, the government hiked railway passenger fares for the first time in nine years and it is also considering raising subsidized fuel prices.

Politicians and business folk have pleaded for the central bank to reduce interest rates that are among the highest of the major economies.

The Reserve Bank of India (RBI) has left its policy repo rate unchanged at 8.0 percent since April 2011, citing stubbornly high inflation, but has signalled it could cut in the January-March quarter.

Inflation numbers for both wholesale and retail prices are due to be released on Monday and should provide crucial input for the RBI's upcoming policy review on Jan. 29.

"We are of the view that the Reserve Bank of India will definitely cut rates by 25 basis points, maintain a dovish tone, and a commitment to maintain liquidity in the comfort zone through open market operations," said Shubhada Rao, Chief Economist at Yes Bank, in Mumbai.

According to a poll of analysts, wholesale prices probably rose an annual 7.40 percent in December, faster than a 7.24 percent rise in the previous month.

Consumer price inflation in the same month probably stood at 10.20 percent, above 9.90 percent in November, the same poll showed on Thursday.

Several analysts believe the RBI should still have leeway to cut its policy rate if the uptick in inflation in December is not more severe, as inflation had been slowing in the previous two months.

Financial markets gave a muted response to the data. The benchmark 10-year bond remained flat at 7.85 percent, while stocks retained their gains, with the main NSE index up 0.3 percent.



"I think there are more signs of a bottom appearing now and sentiment has turned. This number was expected to be low this time but momentum is healthy and if RBI cuts rates in January then it will be another boost. I expect the next couple of prints to be better driven by consumer demand and manufacturing activity and also expectations of rate cuts."


The rupee weakened slightly to 54.46/47 per dollar as of 0537 GMT from around 54.50 before the data. The benchmark 10-year bond was flat at 7.85 percent, while stocks retained their gains, with the main NSE index up 0.3 percent. BACKGROUND

India moved to mend its strained finances, which have hit capital investment and put its sovereign credit ratings in peril, by raising railway passenger fares after a gap of nine years and sources in the government said it had proposed an increase in heavily subsidised fuel prices to rein in a swollen fiscal deficit.

Car sales are likely to post their weakest growth in nine years this financial year, compounding India's gloomy economic outlook, as the automotive industry battles with high interest rates and slowing economic expansion.

The government is likely to approach parliament next month to water down retrospective tax rules that damaged investor confidence, two finance ministry officials said on Monday, a move that may help settle British-based Vodafone Group Plc's long-running $2 billion tax dispute.

India's current account deficit widened to a record high of 5.4 percent of GDP in the September quarter as export growth slowed more sharply than imports, with a similar gap expected in the December quarter likely to prolong weakness in the rupee.

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