Industrial production growth slips to 4.4% in April 2011 :: Emkay

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Industrial production growth slips to 4.4% in April 2011

The index for industrial production grew by a slower 4.4% (as per old series) in April 2011 as against market expectation of 5%. However as the base year has been revised form 1993-94 to 2004-05, the IIP growth for April on revised base was relatively higher at 6.3%, though still at seven month low. The muted IIP growth was primarily led by slow down of manufacturing sector which grew by just 6.8%yoy against 14.5%yoy growth in the same month last year.

The mining production grew by just 2.1% (new series) in April 2011 against 9.2% growth witnessed in the corresponding month last year. The production growth in the capital goods and consumer goods also witnessed a slowdown as the same grew by a slower 14.5% and 2.9% respectively as against 35.5% and 13.8% in corresponding month last year. Consumer durables growth at 3.8%, is the lowest in the last 22 months.

Lower CD growth driven by non-core

However, the lower growth in the consumer durables was driven by non-core sectors like 15% yoy decline in production of furniture, followed by 13.5% decline in production of wood and wood products. Production of tobacco and textiles also witnessed deceleration.

Nevertheless, production rose for ‘Office, accounting & computing machinery’ (96.5%), followed by in ‘Motor vehicles, trailers & semi-trailers’ (22.9%) and ‘Fabricated metal products, except machinery & equipment’ (22.3%).

Although the high inflation and interest rate have curbed the expansion in manufacturing sector, the lower production is reflected only in very non-core sectors. The central bank has increased interest rates nine times in FY11, citing continuing inflation risks. We believe that despite slow down in the non-core IIP, the RBI may continue with its rate hikes and expect further hikes between 50-75bps over rest of FY12 as the inflation targeting remains priority.