Factory output up 2.4% in May Mining, Manufacturing, Capital Goods Remain Weak Spots

New Delhi: Industrial output growth gathered some strength in May but mining, manufacturing and capital goods remained weak spots and economists said the Reserve Bank of India (RBI) is unlikely to ease interest rates as it keeps an eye on inflation. 

    Data released by the Central Statistics Office on Thursday showed industrial output rose a better-than-expected 2.4% in May compared to 6.2% a year earlier. But data for April was revised downwards and showed a decline of 0.9% from the previously reported 0.1% growth. 
    The mining sector continued to show weakness and fell 0.9% in May compared to 1.8% growth in the same year-ago month, while manufacturing grew 2.5% in May, slower than the 6.3% expansion in the same month a year earlier. The capital goods sector, which is seen as abarometer for industrial activity, contracted 7.7% in May compared to a 6.2% expansion in May, 2011. "Good news is that bad news is not continuing," said Planning Commission deputy chairman Montek Singh Ahluwalia. "Such growth rates however are not acceptable. By October... we will be able to tell if economy is turning around." He said the government's focus in the months ahead would be to kick-start investment in the crucial infrastructure sector. Commerce, industry and textiles minister Anand Sharma said he will urge RBI to ensure that capital is available for industry to invest and also the rates are effective. "This has been our consistent and considered view that, given the slowdown, because of the global developments, there is every justification to ensure that Indian industry remains competitive, and manufacturing grows," he said. 
    Economists say RBI will maintain its focus on inflation as it still remains stubbornly high. "Overall industrial activity remains weak due more to government's policy inaction rather than the RBI's monetary policy. The May IIP outcome won't have any bearing on the RBI; we expect the RBI to remain on hold at the July 31 policy meeting as it'll be more focused on inflation worries and the overdue fiscal correction," said Rajeev Malik, senior economist at CLSA in Singapore. 
    India Inc has raised the pitch for policy action from the government and RBI to revive growth and boost sentiment. "The decline in capital goods sector at -7.7% indicates that the investment momentum has dried up and it is high time that coordinated measures both from RBI as well as the government are necessary to boost investments," said Chandrajit Banerjee, director-general, CII.