After months of rapid double digit growth, the Indian industry seems to be cooling off as industrial growth slipped into single digits in June. The fall in industrial production was because of a combination of statistics and a slight moderation in the pace of growth.
Leading industry lobbies, however, voiced no worries and said the drop in production to single digit was due to a high base effect.
'The fall in industrial production was on expected lines as it largely reflects a higher base in the same period last year,' said Chandrajit Banerjee, director general of Confederation of Indian Industry (CII).
India's industrial production grew at a much slower rate of 7.1 per cent in June, compared to 11.5 per cent in the previous month. Manufacturing output rose 7.3 per cent while mining and electricity grew at 9.5 per cent and 3.5 per cent respectively.
While a high base effect was expected to weigh on the index of industrial production this month, the data came in towards the lower end of expectations leaving policy makers disappointed.
Finance Minister Pranab Mukherjee said industrial growth of 7.1 per cent in June, was below his expectations and it could have been better.
"I would say no if its 8.5% GDP growth then industrial growth should be faster than that," said Planning Commission Deputy Chairman Montek Singh Ahluwalia.
The disappointment came in from the capital goods sector where output grew by just over 9 per cent sharply below the 34 per cent growth seen in May.
Growth in consumer durables growth also slowed marginally over last month but remained at a healthy 27.4 per cent.
However, economists feel that a slight moderation in industrial growth may continue over the next few months.
"Global demand coming off, domestic supply side constraints and adverse base effect are all pointing towards a moderation in IIP growth going forward as well. 6-8 per cent is the rough range where IIP growth rate will continue over the next 6 months or so,” said Sonal Varma, an economist with Nomura.
The slip in industrial growth may not do much to change the perspective of policymakers. With the reserve bank maintaining that inflation remains a key concern, more hikes in interest rates still seem inevitable.
