Dip in IIP shows recovery is still uneven: Rajan

Reserve Bank Governor Raghuram Rajan on Monday said the latest weak IIP data only underlines the fact that the economy needs a pickup in investment growth and that the recovery is still uneven.

“Friday’s data suggest that the recovery is still uneven, but it is in my view this is a recovery from the fairly low levels of growth we had reached. But capital goods production came down once again, durables good production has not picked up..However good auto sales suggest that perhaps that may augur good consumption numbers going forward.

“The monsoon is better than initially thought, exports growth has picked up. But what remains is the investment growth to pick up. Credit numbers haven’t picked up as strongly, but part of the reason might be that corporations are using financial markets – the bond and external commercial borrowing markets,” the Governor told a bankers summit organised by FICCI.

Due to lower output from mines, utilities and factories, the July factory output data came down to 0.5 per cent year-on-year, the government data showed on Friday, down from June’s revised 3.9 per cent rise. This makes the April-July IIP data at a low 3.3 per cent.

“The bottom line is that while the macro indicators are improving we still have some way to go before we can declare we are out of the woods,” Rajan said.

However, he expressed hope that a stable government at the Centre will enable the economy stand out when compared to other emerging market peers.

In the quarter to June, the economy expanded by a more-than-expected 5.7 per cent, igniting hopes of a recovery as in the past two fiscals the GDP grew by sub-5 per cent.