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SME Times News Bureau | 10 Aug, 2012
Finance Minister P. Chidambaram and the Indian industry Thursday voiced disappointment over June industrial output data and said the government would try to remove hurdles in critical sectors like power and transport that impede growth.

"It is important to focus on the critical sectors, remove bottlenecks and give a fillip to production," Chidambaram said while reacting on the monthly data.

India's industrial output dropped 1.8 percent in June, the third time in four months, due to a sharp contraction in manufacturing production, government data showed Thursday.

During the April-June period, factory output measured in terms of the Index of Industrial Production (IIP) has contracted by 0.1 percent, according to data released by the Central Statistics Office.

Industrial output had contracted by 0.9 percent in April. However, it had registered a growth of 2.4 percent in May, raising hopes for revival. However, the June data showed that the Indian economy remained under pressure and corrective measures were needed to revive industrial growth.

The impact of the number was felt on the stock market, which lost some of its morning gains.

Weak industrial output data would also put pressure on the central bank to cut rates. In the first quarter review of the monetary policy announced July 31, the Reserve Bank of India (RBI) kept key policy rates unchanged for the second time since June saying lowering of rates would aggravate inflationary pressure.

There was a sharp drop in capital goods production in June. Capital goods output, a key indicator for future growth, dropped by 27.9 percent in the month under review.

"Capital goods is a strategic sector of the economy and has seen negative growth for the past few months with the index dipping by nearly 28 percent in June. We need specific measures for stimulating growth of this sector," said R.V. Kanoria, president, Federation of Indian Chambers of Commerce and Industry (FICCI).

Reacting to the monthly data, director general of the Confederation of Indian Industry (CII) Chandrajit Banerjee said June data was disappointing and indicated a "deepening industrial slowdown which could have a long lasting effect on the economy".

"The situation calls for urgent policy measures both by RBI as well as the government to salvage industry from further decline in industrial output," he said.

"Unless quick action is taken now, it is possible that this trend will continue for the rest of the year," said Harsh Pati Singhania, managing director of JK Paper.

"For the year as a whole, manufacturing growth may show insignificantly. This has obvious implications for overall GDP growth and job creation," said Singhania, who is also president of International Chambers of Commerce (ICC) India.

Reacting similarly, the PHD Chamber said, "The situation in the Indian industry grows from bad to worse as the growth in industry output disappoints again." The mood in the business community is of dejection and despair, it added.

We believe both macro-economic and structural factors are responsible for the recent weakening of corporate investments.

PHD Chamber president, Sandip Somany said the industrial investments have been further hindered by political backtracking and impasse on land acquisition, GST, delay in environmental clearances and other regulatory clearances. "These processes should be expedited and the government has to send positive signals to the investors," he added.