Industrial growth continued to decelerate, slowing to a 16-month low of 4.4 per cent in September on account of sluggishness in key sectors. While the capital goods sector, which has a 9 per cent weight on the index, saw a contraction, four of the 17 manufacturing segments also saw output decrease, according to government data released today.
All the three major index of industrial production (IIP) categories — mining, manufacturing and electricity — saw sharp slowdowns in September on an annual, as well as on a sequential basis.
Industrial growth, as measured by IIP, stood at 8.2 per cent in the corresponding month of 2009 and has been revised upwards to 6.9 per cent in August 2010. September’s IIP growth is the slowest expansion since May 2009. Industrial growth had started moderating in May this year and has continued its downward trend, but for a spike in July.
“We will have to analyse why that (moderation) is happening. After that, comments can be made. But it’s a matter of concern,” said Finance Minister Pranab Mukherjee.
Chief Statistician of India T C A Anant echoed this view. “I am disappointed by these numbers. We have poor numbers for two consecutive months. As the finance minister has said, I think we need to take a careful look,” Anant said.
A slowdown in the industrial sector, which accounts for over a quarter of India’s gross domestic product, and the recent decrease in inflation — especially food inflation, which fell to a one-year low of 12.3 per cent at the end of October — is expected to stay the Reserve Bank of India’s hand on monetary tightening.
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“The trend of moderation will continue and inflation is also expected to come down, given the base effect. RBI will not increase rates in December, but the possibility of a January rate hike is still open,” said Jahangir Aziz, chief economist at JP Morgan India.
Last week, RBI had increased key policy rates for the sixth time this year, saying it would maintain a vigil on persistently high inflation. However, the central bank indicated that it had pressed the pause button for the time being.
“Some of the deceleration was expected due to the base effect, soft core-sector growth and decline in the Purchasing Managers’ Index. But the decline is more than what we had expected, so it is worrying. The decline in the production of capital goods might indicate a slowing down of the investment cycle,” said HDFC Bank Chief Economist Abheek Barua.
“Growth was dampened by a 4.2 per cent contraction in capital goods. Data for the first six months of the fiscal year presents a trend of declining growth of capital goods over the course of both the first and the second quarters, suggesting that the volatility in the growth of capital goods may be partly related to granularity in the completion of orders,” said Aditi Nayar, economist with ratings agency Icra.
But economists also warned that given the high volatility in the capital goods segment, the data should be interpreted factoring this in. “Many questions have been raised on the reliability of the capital goods growth numbers. Therefore, one needs to be a little cautious while interpreting them,” Barua added.
Production of basic and intermediate goods also slowed down during the month at 3.5 per cent and 10.3 per cent, respectively, against 5.3 per cent and 10.6 per cent last year.
Consumer goods growth stood at 5.2 per cent, down from 9.1 per cent in the corresponding period last year, while consumer durables and non-durables grew at 10.9 per cent and 2.5 per cent, respectively, against 21.9 per cent and 3.9 per cent last year.
Analysts expect the moderation in industrial growth to continue, due to a slowing of investment and the high base effect of last year. “The anticipated rise in interest rates following the lagged transmission of monetary tightening may result in the pace of industrial growth remaining moderate in the coming months,” added Nayar.