'Possibility of industrial recovery low in short term' | SupportBiz

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'Possibility of industrial recovery low in short term'

India's industrial output grew by 2.4 percent in May as against 0.9 percent contraction in the previous month, led by rebound in manufacturing and electricity production, government data showed. Analysts, however, warned that the probability of industrial recovery in the short term is low.

The cumulative growth in the factory output in April-May period, measured in terms of the Index of Industrial Production (IIP), stands at 0.8 percent year-on-year.

Electricity production grew by 5.9 percent and manufacturing output rose by 2.5 percent in May, data released by the Central Statistics Office showed.

Economic Affairs Secretary R Gopalan said that the May data showed improvement in factory output, especially in some sectors like textiles.

"It has shown improvement. Factory output was negative in the last two months," he said.

The factory output had contracted by 0.9 percent and 3.5 percent consecutively in the previous two months.

Planning Commission Deputy Chairman Montek Singh Ahluwalia, however, said that the improvement in factory output was not enough to indicate any significant rebound in growth.

"I do not think this is an improvement that indicates robust recovery... It is good news, but not very good news," Ahluwalia said.

Manufacturing output had been a big drag on the overall IIP data, which is considered a barometer of the economic growth.

Devendra Kumar Pant, Director at Fitch Ratings India, said that while the May IIP growth although improved from April, it continued to be lacklustre, suggesting low probability of industrial recovery in the short run.

While positive growth of basic goods (due to slower contraction of mining sector and satisfactory growth of electricity sector) and intermediate goods were a pointer for marginal industrial recovery in the near future, the negative growth of capital goods suggests a sluggish investment scenario, he said.

"Going forward, investment revival and thus industrial recovery will depend on how fast government is able to resolve policy issues. RBI's monetary policy action later this month will be governed more by inflation trend rather than IIP growth," Pant said.