India's industrial production grew an annual 0.1 per cent, lower than a forecast of 0.5 per cent growth in an NDTV poll, but an improvement on an annual contraction of 1.8 per cent logged in June. A recovery in consumer non-durables sector helped the IIP growth in July.
The IIP data suggests broader economic activity remains weak. The economy has grown 5.5 per cent or less in the last two quarters, a far cry from the 7-8 per cent growth seen in the preceding period.
Manufacturing, which accounts for over 75 per cent of industrial production and contributes about 15 per cent to overall GDP, contracted for the second straight month. The sector is battling weak demand in both overseas and domestic markets.
The mining sector, which has a weightage of 14 per cent, declined 0.7 per cent. The mining sector continues to remain a drag, and will have an impact on electricity generation, Barclays Capital told Reuters.
The electricity sector, which has a weightage of 10 per cent, grew at 2.8 per cent.
Capital goods output, a key investment indicator, shrank an annual 5 per cent in July. It has grown only once in the past 11 months. Capital investment in the economy grew a meagre 0.7 per cent in the second quarter of 2012 from a year earlier.
Despite persistent slowdown in growth, the Reserve Bank is unlikely to lower interest rates next week because of inflationary worries.
Indian markets showed little reaction after the data. India's 10-year benchmark bond yield fell around 1 basis point to 8.18 per cent from levels before the data, trading flat from its previous close.
The rupee held on to its earlier gains after the output data, trading at 55.24/25 versus its 55.34/35 close on Tuesday, while the Sensex also retained its gains, trading up 0.5 percent.
The latest economic report offers little respite for the government. With the economic slowdown beginning to bite India's middle class, Prime Minister Manmohan Singh faces the uphill task of reviving the economy before his government faces the polls in a series of state elections starting this year and leading up to a general election in 2014.
(With inputs from Thomson Reuters)