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India’s factory output grows at a slower 11.5 percent in May

New Delhi, July 12 (Calcutta Tube) India’s factory output grew at a slower 11.5 percent in May, compared to a 16.5 percent in the previous month, but still at a comfortable pace, enabling the central bank to look at hiking key rates in a bid to rein in high inflation.

The index for industrial production (IIP) had grown 17.6 percent in April, which was later revised to 16.5 percent.

Data on the country’s index for industrial production (IIP) released here Monday by the commerce and industry ministry showed that the manufacturing sector expanded 12.3 percent during the month under review, which had shot up 19.3 percent in April.

‘Nobody should expect that the industrial manufacturing sector will continue to grow at a abnormally high number for a long time. There are capacity constraints,’ Finance Secretary Ashok Chawla told reporters here.

While mining sector grew by 8.7 percent, power generation expanded by 6.4 percent, the data showed.

Cumulatively, the general index has risen 14.1 percent during the first two months of this fiscal, while the manufacturing index has grown 15.1 percent. Mining and electricity indices expanded by 10.2 percent and 6.6 percent respectively in April-May.

‘Whatever output lag was there in the economy has been filled and the manufacturing sector is now showing the kind of average secular growth which continues to be good and would be favourable for the economy,’ added Chawla.

‘The impact of low base on the growth of manufacturing sector is gradually receding and it is likely that from June onwards we may see further slowdown in the manufacturing sector. The robust growth in capital goods sector is also on the back of negative growth last year,’ said Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry.

The fresh data comes against the backdrop of the Reserve Bank of India (RBI) hiking its short-term lending rates for banks by 25 basis points earlier this month to suck excess liquidity out of the system, ahead of the monetary policy review July 27.

This was the third time this year that the apex bank has hiked its rates since it decided to tighten its monetary policy – first on Jan 29, followed by another on March 19.

At a customary meeting with bank chiefs ahead of the monetary policy review, the central bank told bankers that there was enough liquidity in the system.

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