Raising headache for the government, the official data on Friday reported a dismal industrial production growth of 1.9 per cent, a two-year low, hinting towards economic slowdown. While Prime Minister's Economic Advisory Council head C. Rangarajan termed the drop in industry output as “disappointing”, Chief Economic Adviser Kaushik Basu asked the Reserve Bank of India (RBI) to “rethink” on its policy of monetary tightening.

According to the Ministry of Commerce and Industry, the Index of Industrial Production (IIP) declined for the third consecutive month to 1.9 per cent in September, down from 6.1 per cent in the year-ago period. The dip in industrial growth has been mainly due to poor performance of mining and manufacturing sectors.

Notably, the industrial growth started declining since July this year when it fell to 3.84 per cent from 9.45 per cent recorded in June 2011. In August, the IIP further moderated to 3.59 per cent. In the first six months of current fiscal, IIP growth stood at 5 per cent against 8.2 per cent in the first-half of 2010-11.

“The IIP numbers (for September) are disappointing…it is well below our expectation. But I do see a pick-up by the end of March. We had originally expected overall IIP at 7 per cent for the fiscal, but now it could be 6 per cent,” Dr. Rangarajan said, and asked the RBI to rethink the conventional policy of interest rates.

Similarly, Chief Economic Advisor Kaushik Basu said that the RBI should “rethink” its policy of monetary tightening. “The conventional policy of interest rates ... now you do have to rethink on that,” he said. Mr. Basu, however, said the government and the RBI were facing a dilemma. “There are two battles we have to fight — inflation and growth…it is a really hard balancing act that the RBI has to do,” he said.

Interestingly, Planning Commission Deputy Chairman Montek Singh Ahluwalia, while commenting on the IIP performance, said there was no connection between a high interest rate regime and slowdown in industrial growth. “I would not draw any connection between the rate hikes and decline in industrial production. The rate today is roughly what it was when the economy was growing at 9 per cent.”

Associated Chambers of Commerce and Industry of India Secretary General D. S. Rawat said, “the RBI should start reducing interest rates to boost industrial output growth. The RBI monetary policy to control surplus demand has resulted in low industrial production.”

Federation of Indian Chambers of Commerce and Industry Secretary General Rajiv Kumar also said, “We (the industry) want proactive reform measures from the government to reverse this trend and improve overall business sentiments.”

Strong displeasure

PTI reports from Mumbai:

CII has expressed strong displeasure over the policy inertia and said urgent steps are required to help the economy recover from the slumber.

“After successive quarters of growth, we are having repeated quarters of slowdown in growth,” Confederation of Indian Industry President and Tata Steel Vice-Chairman B. Muthuraman told a CII national council meeting here, which was attended by the top rung of India Inc.

The industry leaders who attended the meeting included Infy Executive Co-Chairman Kris Gopalakrishnan, Wipro Chairman Azim Premji and ICICI Bank Managing Director and Chief Executive Chanda Kochhar among others.

Mr. Muthuraman said the industry was disappointed that not enough was being done on the policy front and called for some immediate measures to revive the economy. “The industry is seriously concerned about the slowdown in the economy,” he said.

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