Worse Than Expected: India's April Industrial Production Rises Just 0.1%

The Index of Industrial Production (IIP) for April rose just 0.1 percent, corroborating fears that economic slowdown will persist in the current quarter.

The consensus expectation was 1.7 percent growth in April as compared to the same period in the previous fiscal year.

The April IIP data released by the Indian Central Statistics Office Tuesday indicate that the factory output has recovered marginally in April as compared to the contraction of 3.2 percent in March 2012.

The data showed that the mining sector growth declined by 3.6 percent, owing to bans and restrictions in extractions due to scandals over illegal mining in several states. The manufacturing sector, which accounts for 76 percent of the industrial output, increased marginally by 0.1 percent, compared to a contraction of 4.4 percent in March. While the electricity sector saw a strong growth rate at 4.6 percent versus the 2.7 percent in March.

Data also revealed a slump in intermediate goods and capital goods. Intermediate goods in April fell to 1.4 percent and capital goods declined 16.3 percent. While the consumer goods sector recorded a 5.2 percent growth as compared to the corresponding period in the past year.

The core sector, comprising key infrastructure industries like coal, crude, steel, cement, power, grew by 2.2 percent, compared to the 2 percent in March.

The slowdown in March IIP had triggered a demand for strong government action on the policy front while the industry had asked for rate cuts to promote growth. But the spiraling inflation had prevented the Reserve Bank of India (RBI) from cutting interest rates.

The government has so far blamed global reasons such as the Euro debt crisis and the global slowdown for the slackening Indian economy.

However, analysts feel that strong government action can turn the economy around. They opine that it is time the RBI gave fiscal support to boost growth.

The data clearly points to industrial growth being extremely weak, and it is in clear need of monetary as well as fiscal support. I think industrial growth needs monetary stimulus irrespective of what the headline inflation number shows day after tomorrow, the Economic Times reported quoting Abheek Barua, Chief economist, HDFC Bank.

Analysts expect that the RBI will cut rates between 25 to 50 basis points in June.

Rating agency Standards and Poor's said Monday that India lacked strong political will in economic policy making. It warned that Slowing GDP growth and political roadblocks to economic policymaking are just some of the factors pushing up the risk that India could lose its investment-grade rating.