Confirming the onset of a slowdown in the wake of a dismal global scenario and direct impact of high inflation and interest rates at home, industrial growth remained tepid at 4.1 per cent in August, 2011, as compared to 4.5 per cent in the same month last year.

The IIP (Index of Industrial Production) data released here on Wednesday revealed a continued deceleration in output growth even as the August performance was a wee bit better than in July which stands revised upwards to 3.8 per cent from 3.3 per cent estimated earlier.

In particular, it was the manufacturing sector with a weight of over 75 per cent in the index which pulled down the overall IIP growth in August. Factory output during the month rose by a mere 4.5 per cent this year as compared to 4.7 per cent last year. As a result, manufacturing growth during April-August 2011 stood at 5.6 per cent, way lower than the 8.7 per cent expansion posted during the same period last year.

The IIP data disappointed Finance Minister Pranab Mukherjee as the low industrial growth may impact the overall economic growth during the second quarter (July-September). Declining to comment on the extent of its impact, he said: “It [IIP] is not encouraging. It is a bit disappointing and it may affect the GDP of second quarter…To what extent it [industrial slowdown] would affect, it would be premature to make any assessment.”

“The silver lining is that IIP has improved from [the] July figure... But compared to corresponding period of previous year, it is quite low,” Mr. Mukherjee said.

India Inc., on its part, has been making out a case for pause in rate hike by the Reserve Bank of India. However, with food and headline inflation hovering near 10 per cent with no signs of relenting, that seems a remote possibility. FICCI noted that investment demand had been impacted during the last few months by RBI's monetary tightening measures.

However, a pause in rate hike appears unlikely. RBI Deputy Governor Subir Gokarn said the apex bank's decision to hike rates further would depend on the inflationary situation. As per the IIP data, the mining sector was the worst performer in August with output declining by 3.4 per cent as compared to a growth of 5.9 per cent in the corresponding month of the previous year. Electricity generation, however, showed a smart turnaround, growing by 9.5 per cent as against a mere one per cent growth in August last year.

Growth in capital goods output also slowed to 3.9 per cent during the month from 4.7 per cent in the same month of 2010. Contributing to the slide was the consumer durables segment, which grew by a mere 4.6 per cent in August this year as compared to an expansion of 8.1 per cent in the previous year. As a result, overall growth in consumer goods output slowed down to 3.7 per cent during the month as compared to 4.6 per cent in August 2010.

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