The IIP disappointed analysts with a flat 0.1 per cent growth in July from the year-ago period, against estimates of a 0.5 per cent rise.
The index, a key measure of industrial output, contracted by a shocking 1.8 per cent in June from the year-ago period against expectations of a 1 per cent growth.
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The mining and manufacturing sectors dragged down the index falling 0.7 per cent and 0.2 per cent, respectively, while the electricity sector grew at 2.8 per cent. Cumulatively, mining and manufacturing fell 0.9 per cent and 0.6 per cent, respectively, in the first quarter of the current fiscal year, while the electricity sector grew by 5.5 per cent.
Basic goods grew 1.5 per cent, while capital goods shrank 5 per cent, and intermediate goods de-grew 1.1 per cent .
Consumer durables and consumer non-durables recorded a growth of 1.4 per cent and 0.1 per cent, respectively, with the overall growth in consumer goods being 0.7 per cent.
Aditi Nayar, economist at ICRA, said: “Typically, we do see a lot of seasonal variations and July, generally, is lower than June. Having said that, something that we do feel strongly is going to persist in the next couple of months is a pullback in the production levels and inventories. The push ahead of the festival season is not what we are going to see over the next few months.”
All eyes are now set on August inflation data scheduled to be announced this Friday. The weak output data and falling inflation could raise expectations that the Reserve Bank of India will shift its stance after keeping interest rates steady since April.
"If the headline inflation comes in below 6.5 per cent, the RBI will have reasonable ammunition for a rate cut," Reuters cited Lakshmi Iyer, head of fixed income and products at Kotak Mutual Fund, as saying.
The IIP is a composite indicator that measures the short-term changes in the production of a basket of industrial goods. The figures are used as a short-term indicator to identify whether a country’s industrial output has declined or increased over a certain period.
The index now covers 682 items. Mining and quarrying, manufacturing and electricity have a weightage of 14.16 per cent, 75.53 per cent, and 10.32 per cent, respectively, according to the Union government.
The Central Statistics Office (CSO) compiles and publishes the IIP numbers every month in comparison with a base year for reference. The base year of IIP has been revised successively, with the latest revision shifting the base year to 2004-05.
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