Mirroring the overall economic slide owing to rising prices, high interest rates, slack consumer demand and the fall in corporate investment at home in the wake of an uncertain global environment, industrial growth slumped into negative territory, contracting by 5.1 per cent in October this year, compared with a robust expansion of 11.3 per cent in the same month of 2010.
The sharp decline in factory output — the lowest in over two years in the aftermath of the global financial crisis of 2008 when it shrank by 1.8 per cent in June 2009 — may not only come as a jolt to the authorities but also prompt the Reserve Bank of India (RBI) to ease its hawkish stance during its monetary policy review on December 16, despite the fact that headline inflation is perilously close to the double-digit mark.
The official data on the Index of Industrial Production (IIP) released here on Monday revealed that the slump in factory output in October was primarily owing to the dismal performance of major sectors such as manufacturing and mining as a direct consequence of high interest rates and persistent slowdown in global economies.
The October output figures were particularly disheartening in that the manufacturing sector, which accounts for a weight of more than 75 per cent in the IIP, shrank by six per cent and the mining sector by a higher 7.2 per cent, compared with healthy growth rates of 12.3 per cent and 6.1 per cent in the same month a year ago. As a result, the cumulative output growth for the April-October period this fiscal slipped to a dismal 3.5 per cent as against 8.7 per cent during the seven-month period last year.
Within the manufacturing sector, what may come as an alert on corporate investment slump during October is the sharp fall in production of capital goods by 25.5 per cent as against a healthy 21.1 per cent jump during the same month last year. Alongside, consumer goods production fell 0.8 per cent as against a growth of 9.3 per cent a year ago. Expressing surprise at the disappointing IIP numbers, the Prime Minister's Economic Advisory Council (PMEAC) chairman, C. Rangarajan, said: “Somewhat lower growth in industrial production was expected, but not a negative growth. We certainly need to look at all our actions in order to provide [a] situation in which the industrial growth rate is not only in the positive but it is respectably high.”
