Industrial output paints a bleak picture of the economy: Crisil

12 June, 2012

India's Index of Industrial Production (IIP) failed to attain the expected growth rate during the month of April 2012. The IIP data released by the government has reflected a disappointing and a discouraging state of the country's economic health.

THE MARGINAL industrial growth has fueled the expectations that the Reserve Bank of India will now be forced to slash the repo rate from the existing level of 8% to 7.5% - 7.75%.

The IIP data showed that the industrial output grew by only 0.1% in the month of April as compared to the growth rate of 5.3% during the same month last year. Notably, the IIP had declined by 3.5% during the month of March 2012 from the year earlier.

Chief Economist with the rating agency Crisil DK Joshi says that the IIP numbers paint a very bleak picture of the overall economy.

“Investment is pointing towards a weak investment climate because investment demand has reduced. Mining sector has contracted. This sector is not doing well means bottlenecks for other sectors like manufacturing etc. So I think overall it (IIP) is painting a bleak picture (of the economy),” said DK Joshi to this citizen journalist .

Industry body FICCI said that the 0.1% IIP growth rate only shows that the Indian industry is in the midst of crisis and bold decisions are the need of the hour to revive the growth.

“The April IIP figures of 0.1% reconfirms our view that Indian industry is in the midst of crisis and business sentiments are indeed very low. The Government needs to take bolder decisions and at a much faster pace to push forward reforms for a quick turnaround in the industrial growth,” said Rajeev Kumar, Secretary General, FICCI in a release.

DK Joshi said that in the wake of the slowdown in the economy and softness in the international crude oil prices RBI may cut down the repo rate, the rate at which it lends to the banks, by 25 basis points.

“The slowdown in the overall economy and softness in the international oil prices gives room to the RBI to cut rates. However, it can't be very aggressive as inflation continues to be a problem but I expect a 25 basis points reduction in the repo rate,” said DK Joshi. The industry lobby group FICCI also demanded a reduction of 50 basis points in the repo rate for the revival of the industrial growth.

Notably the Indian economy saw a nine year low growth rate of 5.3% in the first three months of 2012. Moreover the international rating agency S&P has also warned India that it could become the first nation among the BRIC countries to lose its investment-grade rating due to the slowing GDP growth and political roadblocks to economic policymaking.