Industrial Growth fell to its 21-month low at 3.3 per cent in July 2011

The official data on the Index of Industrial Production (IIP) released on 12 September 2011 by the ministry of statistics and programme implementation showed that in the wake of high inflation, industrial growth fell to its 21-month low at 3.3 per cent in July 2011. Industrial growth had witnessed a robust expansion of 9.9 per cent in the same month in 2010 and a healthy 8.8 per cent in June 2011.

The industry's performance in July 2011 was the worst since October 2009 when it grew by a mere 2.3 per cent following the severe impact of the global meltdown.

The manufacturing sector, which accounts for more than 75 per cent of the index, grew by a paltry 2.3 per cent during the month as against an expansion of 10.8 per cent in July, 2010.

The mining sector's output also grew by a mere 2.8 per cent in July this year, much lower than the 8.7 per cent increase in July 2010. Production of intermediate goods declined by 1.1 per cent as compared to a growth of 8.5 per cent in July 2010.

The segment that signalled a slowdown in investment was capital goods which put up a dismal show with a negative growth of 15.2 per cent in July as compared to a nearly 38 per cent expansion in June 2011. As a result, IIP growth for the April-July period for the 2011-12 fiscal stood at 5.8 per cent as compared to 9.7 per cent posted for the same four-month period of 2010-11. The IIP numbers for April-July has been revised downward to 5.3 per cent from 5.7 per cent estimated earlier.

Electricity generation, however, rose a robust 13.1 percent in July.

Apex chambers have been campaigning for a pause in rate hike by the RBI as the step appears to have curbed growth without taming inflation. The fall in industrial output will lend further strength to the arguments of India Inc that continuous rate hikes by the RBI were affecting growth. The RBI has raised key interest rates 11 times since January 2010 to tame inflation.

Prime Minister's Economic Advisory Council (PMEAC) is of the opinion that industrial growth target for the 2011-12 fiscal projected at 7.1 per cent had to be revised.