Raises doubts whether economy will grow at 9% in FY08.
Industrial output growth in January registered a 10-month low of 5.3 per cent against 11.6 per cent in the same month last year and a revised 7.7 per cent in December, raising doubts over whether India will grow at 9 per cent in fiscal 2007-08. | |||||||||||||||||||||||||||||||||||
Data on the Index of Industrial Production (IIP) were released by the Central Statistical Organisation at noon and caused the Bombay Stock Exchange's benchmark 30-scrip Sensex to plunge and close only 4.83 points up after advancing nearly 560 points at opening on the back of a global rally. | |||||||||||||||||||||||||||||||||||
The data surprised economists who had expected a near 8 per cent increase in the index. | |||||||||||||||||||||||||||||||||||
Manufacturing sector growth, which has a weight of 80 per cent in the index, dropped 50 per cent. A sharp spurt in jute and other vegetable fibre textiles at 281 per cent, whose weight is around 6 per cent in the index, helped the index perform a little better. | |||||||||||||||||||||||||||||||||||
"This is an aberration. There is no visible trend to show that there could be such a sharp fall in capital goods production. All these months, consumer demand had been waning, but was compensated by double-digit growth in capital goods," said Shubhada Rao, chief economist, Yes Bank.
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Consumer durables continued to perform badly, with production growth declining 3.1 per cent, over a growth of 5.3 per cent last January. | |||||||||||||||||||||||||||||||||||
This slowdown has been attributed to a declining consumer demand due to high interest rates. But many experts point out that since many goods and products in the sector "� such as mobile phones and computers "� are not reflected in the index, the IIP data do not convey a true picture of sectoral performance. | |||||||||||||||||||||||||||||||||||
DK Joshi, principal economist, at rating agency Crisil said period numbers were more important than monthly data. For the April-January period in 2007-08, IIP rose by 8.7 per cent, significantly lower than 11.2 per cent in the corresponding period of 2006-07. | |||||||||||||||||||||||||||||||||||
Both Rao and Joshi expect an annual IIP growth of 8.5 to 8.7 per cent in 2007-08, lower than the actual IIP growth of 11.6 per cent in 2006-07. | |||||||||||||||||||||||||||||||||||
Although the government expects 9 per cent economic growth this year, most economists say 2007-08 will end at 8.5 per cent over 9.3 per cent in 2006-07. | |||||||||||||||||||||||||||||||||||
Moreover, with inflation rising to a nine-month high of 5.02 per cent in late February, it is unlikely that the Reserve Bank of India (RBI) will cut key lending rates in the near future. | |||||||||||||||||||||||||||||||||||
The central bank has kept the key lending rate at 7.75 per cent, which in turn has led to slower demand for credit and impacted several interest rate- sensitive sectors. | |||||||||||||||||||||||||||||||||||