Industrial growth nosedived to a dismal 2.7 per cent in November last year from a robust and identical 11.3 per cent expansion notched up during the same month a year ago as also in October 2010, opening up another area of concern for the authorities who are already striving hard to tackle the runaway increase in food prices.
The sharp deceleration in growth in November 2010 to an 18-month low, according to the IIP (index of industrial production) data released here on Wednesday, was owing to a slump in factory output. The manufacturing sector, which accounts for about 80 per cent of the IIP, grew by a mere 2.3 per cent against a growth of 12.3 per cent a year ago while the consumer non-durables segment posted negative growth.
With high inflation and low industrial growth, the government and the Reserve Bank of India (RBI) are faced with a set of contradictions as combating rising prices through monetary measures would tend to hurt the other. High inflation being the government's prime concern for the moment, the RBI is expected to hike its key policy rates during its monetary review on January 25.
Even as the slump in factory output can be statistically attributed to the ‘high base' effect of 11.3 per cent growth in November 2009, Mr. Mukherjee expressed concern and assured corrective steps to spur growth.
“We shall have to look into [the data] and take corrective measures so that IIP numbers revive in the remaining four months [of the fiscal],” he said.
“Last time, if you have noticed that in November last year, it [IIP growth] was very high, so base effect is also there, but that is no consolation…If IIP goes down and inflation goes up, it will have an adverse impact, but I am not coming to any premature conclusion,” Mr. Mukherjee said.
In any case, tackling high inflation while spurring industrial growth will call for very fine-tuned and well-calibrated policy measures as it is not clear as to whether the slide in manufacturing growth in November was owing to a slump in consumer demand and more so as a resistance to high prices.
For, while the mining sector posted a growth of six per cent in November 2010 as compared to 10.7 per cent in the previous year and electricity generation rose by 4.6 per cent from 1.8 per cent, it was the manufacturing sector that performed dismally.
In particular, the production of consumer non-durables contracted by 6 per cent in November 2010 as compared to a growth of 2.3 per cent, while consumer durables' output rose by merely 4.3 per cent as against a whopping 36.3 per cent in November 2009.
Significantly, the capital goods segment — the barometer of industrial expansion and activity in future — not only maintained but performed better with a growth of 12.6 per cent in November 2010 over and above the 11 per cent expansion posted in the same month a year ago.
The IIP data revealed that during the month, as many as nine out of 17 industry segments registered negative growth.
However, despite the sharp dip in November, industrial growth stood pegged at 9.5 per cent during the first eight months (April-November) of the current fiscal, markedly higher than the 7.7 per cent expansion achieved in the same period in 2009-10.
Keywords: Industrial growth