Commenting on the index of industrial production data for June 2012, Chandrajit Banerjee, director general, CII said that the June IIP growth which has gone into negative territory, for the second time in the last two months, is a matter of great concern and does not bode well for early revival of the sector. And if we factor in the base effect, the performance of industry looks even more disheartening.
What is especially discouraging is the sharp decline in output of all sub-sectors-manufacturing, mining and electricity - which continue to be under stress owing to a spate of inhibiting factors such as high interest rates, flagging investments, policy bottlenecks and subdued demand conditions. A tight monetary policy announced by RBI to rein in the rupee has further created conditions which depress demand. The negative growth of the capital goods sector and a sharp deceleration of consumer goods industry especially consumer durables also call for urgent remedial action to stop its further descent into the red, according to Banerjee.
While fully appreciating the RBI's compulsions to keep the rupee under check, Banerjee said that it is also important that the RBI takes cognizance of the steep slide of industrial production and reduce interest rates to revive demand. However, easing monetary policy alone is not sufficient. This must be supplemented with government action to revive investment and stimulate demand. We must move fast to expedite project clearances, implement the national manufacturing policy, indicate timelines for implementation of industrial and freight corridors and provide a competitive market for the coal and mining sectors.