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Slowdown looms, IIP at 5.3%

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BS Reporter New Delhi
Last Updated : Feb 05 2013 | 3:36 AM IST
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.
 
The fall took place chiefly because of an unexpected decline in capital goods and a continuing downtrend in consumer durables.

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.
 
The sharp decline across sectors was caused by a steep decline in manufacturing, mainly on account of a dismal 2.1 per cent production growth in capital goods against 16.3 per cent growth last January.

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. 
 
PAUSE...
Sector07-Jan
(% growth)
08-Jan
(% growth)
Overall
Apr-Jan 06-07

(% growth)
Overall
Apr-Jan 07-08

(% growth)
Mining7.71.84.84.6
Manufacturing12.35.912.19.2
Electricity8.33.37.66.3
Overall11.65.311.28.7
Source: Central Statistical Organisation
 
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.

 

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First Published: Mar 13 2008 | 12:00 AM IST

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