IIP growth slumps to 1.7% in May owing to low manufacturing output

Industrial output growth slumped to 1.7% in May from 8% a year-ago due to poor performance of mining and manufacturing, and may put pressure on the RBI to cut interest rate in its policy next month. The factory output growth, measured on the Index of Industrial Production (IIP), for April-May period decelerated to 2.3% from 7.3% in the same period last fiscal, as per the data released by the Central Statistics Office.

The data further revealed that output of the capital goods segment, considered as key indicator of investment, shrunk by 3.9% compared to a high growth of 13.9% recorded in May 2016. The consumer durables segment too witnessed a decline. While mining sector output declined by 0.9% in May against 5.7% growth in the year-ago month, the growth of manufacturing sector slowed to 1.2% from 8.6% in the same month last year. However, electricity generation expanded by 8.7% in May as against 6.1% growth in the corresponding period last year.

The Reserve Bank, which is slated to announce its bi-monthly monetary policy later next month, has kept the interest rate on hold citing risks to inflation. The government has been pressing on the RBI for a cut in interest rates to increase private investment. Industry too has been persistently demanding rate cut to boost investments.