IIP at 4-month high as capital goods boost output 2.6% in July

New Delhi: Aided by a rebound in capital goods production, the country’s industrial output grew a better-than-expected 2.6 per cent in July compared with the same period last year. This was a four-month high.

This brings some cheer to an economy that was slowing down with the Index of Industrial Production contracting in the two months before July, the rupee sliding sharply against the US dollar, and the current account/fiscal deficits widening. A marginally lower retail inflation in August, at 9.52 per cent against 9.64 per cent in July, also improved the sentiment.

However, the new data — released on Thursday after market hours — may not be compelling enough for the Reserve Bank of India to reduce repo rates in its monetary policy review on September 20, say economy watchers.

Meanwhile, the IIP for June contracted only 1.78 per cent and not 2.2 per cent, as provisionally reported. It contracted by 2.8 per cent in May.

Under the use-based classification, capital goods output grew 15.6 per cent (-5.8 per cent) and consumer goods contracted 0.9 per cent. While basic goods output grew 1.7 per cent (one per cent), intermediate goods recorded a growth of 2.4 per cent (0.1 per cent).

On a sectoral basis, the IIP performance was buoyed by improved manufacturing output and electricity generation. While manufacturing grew three per cent in July, electricity generation was up 5.2 per cent (2.8 per cent).

Reacting to the IIP data, Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industry (CII) welcomed the return of industrial growth.

While the new data mark a break from the past two months, which saw output contracting, it is too early to presume that a recovery is under way, said Chandrajit Banerjee, Director-General, CII.

Didar Singh, Secretary-General, FICCI, hoped the manufacturing sector will be able to achieve higher growth in the next few months backed by festival demand and improved exports. Banerjee said the IIP data would buoy sentiments.

Sentiments should also improve with positive news emerging from the US and Euro Zone, as also owing to the expected good performance in the domestic agricultural sector, he added.