Reserve Bank Deputy Governor Subir Gokarn on Saturday expressed concern over the sharp fall in factory output growth, saying the latest numbers are disconcerting.

However, he was quick to add that the other key indicators such as corporate earnings and tax collection numbers show that the recovery process is on track, though they may not be as explosive as it was some quarters back.

“The IIP (index of industrial production) is suggesting somewhat of a deceleration (in the growth process). 5.5 (per cent) in August and 4.4 per cent in September, a lot of that deceleration is coming in from a sharp decline in capital goods, which, of course, must raise some concerns,” Mr. Gokarn told a Chief Financial Officers’ Summit organised by the Indian Industries in Mumbai on Saturday.

“Whether this deceleration reflects a slowdown in investment activities? If that is the case, is it reflecting the cost of funding, is it reflecting weaker expectations of future growth or a combination of the two? All of these is a matter of concern,” the Deputy Governor further said.

For the second month in a row, the factory production numbers almost halved to 4.4 per cent in September, which is a 16-month low from 8.2 per cent in the year-ago period.

The September figure is the lowest since the recovery got underway and reflects a slowdown in demand across the sectors, as interest rates rose in response to RBI’s tight monetary moves.

Even the revised August numbers at 6.3 per cent are way off the comfort level of the Finance Ministry, which is eyeing an over 8.5 per cent GDP expansion this fiscal.

Stating that IIP numbers alone are not the true indicators of the growth picture, Mr. Gokarn said, “The other indicators are not so negative. If we look at tax collections and corporate earnings, things don’t look so bad, don’t suggest a massive meltdown.

“Both these numbers suggest that there may not be an explosive momentum in production but there is a robustness to it.”

“(Therefore), we cannot rely exclusively on one set of numbers to arrive at a conclusion,” Mr. Gokarn concluded.

Reacting to the number, a disappointed Finance Minister Pranab Mukherjee had said, “We will have to analyse why that is happening. And after that considered comments can be made. But it’s a matter of concern.”

Led by capital goods, four of 17 industries recorded contraction in output and that include chemicals and metals. Capital goods industry contracted by 4.2 per cent in September against 7.9 per cent a year ago, which is better than August when it contracted by 2.6 per cent, but way off the July figure of 63 per cent growth.

Manufacturing, which constitutes almost 80 per cent of the industrial production, grew at 4.5 per cent in September, against 8.3 per cent a year ago, while electricity generation expanded by a minuscule 1.7 per cent against 7.5 per cent. The growth rate of less than 4.4 per cent was last witnessed in May 2009, when IIP stood at 1.69 per cent.

For the first six months, industrial growth stood at 10.2 per cent against 6.3 per cent a year ago.

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