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IIP growth moderates to 5.6% in May 2011
The pace of industrial production moderated further in May 2011, with IIP growth slowing
to 5.6% from a downwardly revised 5.8% in April 2011. The latest IIP print was well below
Bloomberg’s median forecast of 8.5%.
Growth in manufacturing production, which accounts for 80% of the industrial production,
slowed to 5.6% (vs. 6.3% in April 2011 and 8.9% in May 2010). In terms of industries, 14
of the 22 industry groups in the manufacturing sector registered positive growth during
May 2011. Mining production growth was muted at 1.4% (1.3% in April 2011) compared
to strong 7.8% growth in May 2010. Growth in electricity picked up sharply to 10.3% from
6.5% in April 2011 and 6.2% in May 2010.
As per use-based data, basic goods recorded growth of 7.2% compared to 6.1% in May
2010 and 6.9% growth in April 2011. Capital goods’ performance cooled off to 5.9%
compared to 7.3% (revised from 14.5%) growth in April 2011. Consumer durables
continued to report slower growth trend witnessed in April 2011, with growth of 5.2%;
overall consumer goods grew by 5.4% during May 2011.
The moderating growth trend is in-line with the RBI’s target of reducing demand-side
inflationary pressures even if it means sacrificing a bit of short-term growth. Though
elevated inflation numbers may prompt the RBI to persist with one or two more hikes in its
repo rates, overall looking at the signs of cooling global commodity prices, moderating
food inflation, weakening domestic demand, slowing credit off-take and higher deposit
mobilisation, we believe both inflation and interest rates are likely to start cooling off from
2HFY2012.
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