New Delhi: With industrial production hitting a 4-month high of 3.8% in June, India Inc today said it indicates revival in industrial activity on the back of improved performance of manufacturing, and should motivate the RBI to slash interest rates.
Terming the the outcomes of the recent RBI policy review as "slightly disappointing", Assocham said the central bank should have reduced the rates a bit to provide a fillip to the industrial growth.
"It must be realised that uncompetitive interest rates affect the credit availability and its cost to the corporates, especially the SME sector," Assocham Secretary General D S Rawat said.
Industrial production expanded at a 4-month high rate of 3.8% in June due to improvement in manufacturing activity.
Measured in terms of the Index of Industrial Production (IIP), industrial production had grown 4.3% in June last year, as per the data released by Central Statistics Office (CSO) on Wednesday.
CII Director General Chandrajit Banerjee said the rise in industrial production, albeit moderate, indicates that the industrial recovery is gathering pace based on the improved performance of the manufacturing sector.
"This should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions," Banerjee said.
The manufacturing sector which constitutes over 75% of the index, grew at 4.6% in June compared to 2.9% in the same month last year.
During April-June period, the sector grew by 3.6% compared to 3.9% in the year-ago quarter.
"There are some visible signs of growth in manufacturing and we hope that this momentum could be sustained.
"However, the turnaround in investments will take some more time and efforts should be to expedite infrastructure and other projects and provide a more simplified business environment for starting and operating business," Ficci President Jyotsna Suri said.
According to Banerjee, for investment activity to pick up pace, it is necessary that the government initiates investor friendly reforms and takes steps to expedite the execution of approved projects by accelerating the pace of reforms including in the area of land, labour and environment.
Besides, he said, public investment in infrastructure including construction should be augmented to restart the virtuous cycle of growth.
Further, priority should also be given to improving the ease of doing business, introducing bankruptcy laws, facilitate ease of entry and exit so that India becomes an attractive destination for doing business, Banerjee said.
"It is felt that a complete recovery of the industrial production still seems to be a distant dream," Rawat said.
However, the output of capital goods, a barometer of investment, contracted by 3.6% compared to 23.3% growth in the same month last year.
For the April-June period, the capital goods production is up at 1.5%, compared to 13.7% growth in the corresponding period a year ago.
"CII is somewhat concerned about the steep decline in the output of the capital goods sector which has slipped to the negative territory after showing positive growth over the last few months.
"This indicates that new investments are still not happening and the firming up of the investment cycle is still some distance away. The subdued growth of mining and electricity sector is also disconcerting," the industry body said.
Industry bodies also hailed as a "major positive" the turnaround of the consumer goods segment.
Overall consumer goods output grew by 6.6 per cent in June compared to a contraction of 8.8% in the month a year ago. During April-June the consumer goods output grew by 2.4% compared to a decline in production by 3.2%.
The consumer durables goods output grew at 16% in June compared to a contraction of 23.3% in the month a year ago. In April-June the segment grew by 3.7% compared to a contraction of 9.5% in the period last year.
Senior economist at ICRA Aditi Nayar said the IIP growth has remained sub-5% in the current calendar year, highlighting that a deep-seated industrial recovery is yet to take root.
Besides, commenting on the retail inflation, which fell to multi-year low of 3.78 per cent in July, economist at Deloitte Rishi Shah said while the decline in inflation was expected on a positive base effect, the situation on the food front has been considerably better due to the better than expected monsoons.
Devendra Kumar Pant, Chief Economist, India Ratings & Research said the CPI inflation at 3.78% in July was much below expectations and was mainly due to sharp fall in food inflation.
"This will have a favourable impact on bond pricing and increase in probability of monetary easing," he said.