Industrial growth slowest in 11 mths

'I loathe drawing any conclusion from one month's data,' says FM.

In a pointer to a slowdown in consumer demand, India's industrial production growth dipped to an 11-month low of 6.4 per cent this September, nearly half the September 2006 figure.

Manufacturing, which accounts for nearly 80 per cent of the Index of Industrial Production (IIP), took a major hit, growing only 6.6 per cent against 12.7 per cent a year ago.

September recorded the lowest IIP growth since October last year, when the index rose 4.5 per cent. In the April-September period, industrial growth increased 9.2 per cent. 
 

BRAKING NEWS                                                 (% growth)
Sector	September 2006	September 2007	April-Sept  2006-07	April-Sept  2007-08
Mining	4.3	6.0	3.1	5.3
Manufacturing	12.7	6.6	12.3	9.7
Electricity	11.3	4.5	6.6	7.7
Overall	12.0	6.4	11.1	9.2
Source: Central Statistical Organisation

The manufacturing slowdown is being attributed to the triple whammy of decade-high interest rates, a rupee that has appreciated nearly 15 per cent to a nine-year high and cheaper imports from countries like Thailand and Malaysia.

However, Finance Minister P Chidambaram said annual growth was on track. "I loathe drawing any conclusion from one month's data. One has to take a slightly longer-term view. My own feeling is that both industry and services could reach a growth rate of close to 10 per cent (for 2007-08). That means that 83 per cent of the economy is growing at 9 to 10 per cent," he said.

The central bank has forecast GDP growth of 8.5 per cent in 2007-08.

Consumer durables growth dipped 7.6 per cent against an increase of 11.73 per cent in the same month last year. Consumer non-durables grew 2.2 per cent, against 12.2 per cent in the same period a year ago. However, the industry continues to insist that IIP data do not correctly reflect actual performance in consumer durables.

"The sector grew by least 10 to 12 per cent since April. There could have been a slight variation in the demand side during the Shraadh period in September, but there is no slowdown," said Suresh Khanna, secretary general, Consumer Electronics and Appliances Manufacturers Associations.

The data took analysts by surprise. "There seems to be a softening in consumer goods demand, but investment demand remains strong. The 6.4 per cent industrial growth in September seems to be an aberration and needs careful analysis," said Shubhada Rao, chief economist, YES Bank, adding that if the growth rate in industrial production moderates, "there would be limited scope for the RBI to raise interest rates in coming months".

Credit growth has slowed to 21.9 per cent, down from 27.6 per cent by March 31, 2007, on account of the series of monetary tightening measures taking effect.

Since September 2004, the Reserve Bank of India has increased key rates significantly to keep money supply in check.

The RBI increased the cash reserve ratio (CRR), the amount of deposits banks must keep with the central bank, by 300 basis points to 7.50 per cent.

The repo rate, the rate at which the central bank lends short-term money to banks against government securities, has been raised 175 basis points to 7.75 per cent.

The reverse repo rate, the rate at which banks lend short-term money to the central bank against government securities, has been raised 150 basis points since September 2004.

The tightening measures will continue to have a significant impact till mid-2008, according to analysts.

The silver lining was the robust growth of production in capital goods at 18.6 per cent, against 9.5 per cent in the same period a year ago.

However, intermediate goods production stood at 9.3 per cent against 13.8 per cent in the same month last year. Growth in the basic goods sector also dipped to 6.7 per cent against 11.5 per cent year ago.