Blaming Reserve Bank of India's (RBI) earlier tight monetary policy for contraction in India's industrial growth, Moody's today said deceleration in manufacturing output is a concern for overall economic growth.
"Despite a global market turmoil, India's central bank continued to tighten monetary policy until July... The moderation in demand is a result of the tight monetary policy settings in the first nine months," said Moody's Economy.Com, a subsidiary of Moody's group.
Pointing out that loosening cycle of monetary policy by RBI began only in October, Moody's said, it might not have led to an immediate rebound in domestic consumption.
"As such, manufacturing orders from the domestic sector likely remained modest in November and December," it said.
However, the RBI had yesterday stated that monetary measures taken by it were "appropriate".
Industrial growth turned negative in October for the first time in 15 years, as manufacturing, which comprises around 80 per cent of the industry, shrank to 1.2 per cent growth in October from a whopping 13.8 per cent a year ago.
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"Although the Indian economy depends largely on the services sector, a contraction in the manufacturing sector is still of concern to its overall growth outlook," Moody's said.
Indian economy grew by 7.8 per cent in the first half of the current fiscal from 9.3 per cent a year ago.
Linking contraction in Industrial growth to decline in both domestic and external demand, Moody's said, "India's export outlook is dismal. Outbound shipments declined in October, but the worst is yet to be seen. Losing support from external orders, India will unlikely see a rebound in manufacturing output any time soon."
India's exports dipped by over 12 per cent in October and initial reports suggest it would fall by another 10 per cent in November.