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Updated: October 13, 2010 00:31 IST

Industrial growth slumps to 5.6%

Special Correspondent
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In this file photo, a worker makes gloves at a company in Ankaleshwar, Gujarat. Industrial growth slowed down to 5.6 per cent in August from 10.6 per cent in the corresponding period last year, data released on Tuesday said.
AP In this file photo, a worker makes gloves at a company in Ankaleshwar, Gujarat. Industrial growth slowed down to 5.6 per cent in August from 10.6 per cent in the corresponding period last year, data released on Tuesday said.

Finance Minister, corporates disappointed

To the disappointment of the government and concern of India Inc., the growth in industrial production plummeted to 5.6 per cent in August — the lowest in 15 months — from 10.6 per cent in the year-ago period, mainly owing to negative growth in capital goods stemming from a slump in manufacturing output. The official data on the Index of Industrial Production released here on Tuesday revealed that the manufacturing sector, which accounts for nearly 80 per cent of the IIP numbers, witnessed a sharp dip in growth to 5.9 per cent during the month from 10.6 per cent in August 2009. Worse still, the capital goods segment strayed into negative territory and slipped by 2.6 per cent as compared to a robust growth of 9.2 per cent posted in the same month last year.

The lowest growth in factory output in previous months was in May last year at 2.7 per cent. The slump in August this year, however, may be viewed as a one-off aberration as economic analysts had earlier projected a likely dip in industrial growth to single digit owing to the high base effect of August 2009. Moreover, the marginal growth of 3.7 per cent posted by the six infrastructure industries during August this year was also seen as a signal of lower overall industrial output growth for the month.

Commenting on the IIP data, Finance Minister Pranab Mukherjee expressed disappointment over the August numbers but stressed that the economy was on the recovery path and with increased investments and growing consumer demand, the fiscal year would end with an industrial growth of nearly 12-13 per cent to help post a GDP growth of 8.5 per cent or more.

“[The trend is] a little disappointing. Let us see how it fares in annualised terms…As you all know, Indian economy is on the path of robust growth, led by increased investment and capital inflows, stronger industrial output and rising aggregate demand,” Mr. Mukherjee said.

India Inc. is firmly of the view that the RBI's tight-money policy stance that has pushed up interest rates for corporates as well as retail customers and this has had its impact on industrial growth. Apex industry chamber FICCI felt that any further hike in interest rates would hit consumer durables and auto sectors. Echoing similar sentiment in a statement, the Confederation of Indian Industry (CII) said: “…the RBI should not raise policy rates any further as it could have a negative impact on consumer demand as well as corporate investment and thereby slowdown economic growth.”

The latest IIP data revealed that mining output growth also decelerated to seven per cent from 11 per cent, as did electricity generation to one per cent from 10.6 per cent. The only sector that showed a robust trend in August was consumer durables which grew by 26.5 per cent in August as against 24.7 per cent in the same month last fiscal.

Choosing not to make any statement on the apex bank's policy direction, RBI Governor D. Subbarao said: “We will study [the IIP numbers]. I cannot make a comment [just yet].” Evidently, the central bank's task will be to maintain a balance between the need to check prices with inflation still high at 8.5 per cent and, at the same time, create a favourable environment for pushing up economic growth.

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