Manufacturing, which constitutes about 76 per cent of industrial production, shrank an annual 4.4% from a year earlier.
Arun Singh, Senior Economist, Dun & Bradstreet said that the concern over economic growth has increased after the dismal IIP data, and it should prompt the RBI to go for further reduction in interest rates from June. "I see another 100 basis points cut in the repo rate by March 2013," he said.
Siddhartha Sanyal, Chief India Economist, Barclays Capital said: "I don't think just one data point, and that too IIP, will change the RBI (Reserve Bank of India) policy stance. But we are of the view that incrementally RBI will have to cut rates more and sound dovish,"
RBI will have a bias to not cut rates till July, but may have to start after that. We expect another 50-75 basis points rate cut in this year, he added.
Sujan Hajra, Chief Economist, Anand Rathi Securities expects a rebound in industrial production in the fiscal second half and expects the full year number to be about 5 percent.
"RBI's near-term rate outlook will still be driven by the inflation trajectory. They may instead infuse liquidity going ahead through open market operations and cash reserve ratio cuts during June-September," he said.
Dariusz Kowalczyk, Economist, Credit Agricole CIB is of the opinion that the contraction was driven by particularly poor performance of the manufacturing sector, in line with weak exports that month.
"We believe that April saw a turnaround, but until this is confirmed, sentiment will be weak. The data increases the odds of another rate cut, is negative for the rupee, and should push INR OIS rates and bond yields down," he said.
C Rangarajan, Chairman of PMEAC expressed disappointment over the IIP data. He said that the capital goods sector has shown huge volatility. Rangarajan also emphasized the immediate need to address the calculation of the IIP data.
Reacting to the sharp decline, Keki Mistry, CEO, HDFC expressed hope that the this is the lowest of the IIP numbers. "We will expect better numbers in the year ahead," he said.