Belying hopes of an early economic revival, industrial production contracted by 0.4% in September on account of dismal performance of manufacturing and capital goods sectors, prompting India Inc to press for interest rate cut by the Reserve Bank.
The industrial output growth rate turned negative in September after showing 2.3% growth in the previous month. The Index of Industrial Production (IIP) was at 2.5% in the corresponding period of last year.
Terming the decline in the Index of Industrial Production (IIP) as "very disappointing", Planing Commission Deputy Chairman Montek Singh Ahluwalia said the data did not reflect the impact of recent reforms initiatives which would manifest in the later part of the fiscal.
Expressing similar views, Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said it was disappointing to see IIP slipping into negative after showing signs of improvement in August and hoped that things would improve in the coming months.
Meanwhile, the Industry chamber CII stepped up its demand for 0.5% cut in interest rate by the RBI saying "a complete sacrifice of growth is not in the interest of the economy".
RBI has refrained from cutting interest rate fearing it could fuel inflation. The central bank is scheduled to come out with its next mid-quarter policy on December 18.
The IIP data suggests that output of manufacturing sector, which constitutes over 75% of the index, contracted by 1.5% in September, as against a growth of 3.1% in the same month last year.
Industrial output in the April-September period this fiscal stood at 0.1%, down from 5.1% in the same period of 2011-12.
Commenting to IIP data released today, Ahluwalia said, The Index of Industrial Production (IIP) for September is obviously very disappointing...We have to look to the second half of the current year to see if the economy is actually going to do better. September data is obviously a bit of low point".
Disappointed over the dismal IIP data, Rangarajan, said: "The September IIP number was a disappointing figure particularly when the August industrial production rate showed a pick-up."
After the poor industrial output in September, said he felt the economic growth can be in the region of 5.5%.
Reserve Bank of India had initially estimated this fiscal's GDP growth rate at over 6.5% but later scaled it down to 5.8%.
President of Industry chamber FICCI R V Kanoria called for implementing big ticket reforms, expediting infrastructure projects and easing monetary policy to bring economy back on track.
"At this juncture, it is important that Government does not lose momentum on reform front...", he said.
Kanoria, among other things, said there was a need to take courage now to implement some big ticket reforms like implementation of GST and effective and time-bound coordination mechanism for project clearance envisaged in National Investment Board (NIB).
The FICCI President, in statement, also hoped RBI will relook at its monetary policy in the light of the latest IIP figures and reduce interest rates.
CII also wants the RBI to reduce repo rate (the rate in which banks borrow from the central bank) and CRR by another 0.5% each.
As per the data released, production in the manufacturing sector in April-September this year also dipped by 0.4% as against a growth of 5.5% growth in the same period in 2011-12.
Capital goods is another segment where output declined by 12.2% in September, as against a contraction of 6.5% in September, 2011. The production of such goods contracted in the first half of this fiscal by 13.7%, as against growth of 4.6% in the 2011-12 period.