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Our Bureau

New Delhi, Sept. 12 The country’s industrial growth took a dip in July with the overall growth of the index for industrial production (IIP) slipping sharply to 7.1 per cent against 13.2 per cent in July last year.

The July 2007 performance was lower even when compared to June 2007 when the IIP registered a 9.8 per cent growth, slightly higher than 9.7 per cent recorded in June 2006.

The July performance, official figures for which were released on Wednesday, was down under all the heads when compared with a year-ago performance.

Manufacturing growth was only 7.2 per cent against 14.3 per cent in July 2006, mining was at 4.9 per cent against 5.1 per cent and electricity generation grew by only 7.5 per cent against 8.9 per cent a year ago.

Growth in the consumer durables sector actually went into the red with the index for this segment showing a negative 3.2 per cent growth against 16.1 per cent in July 2006. Overall consumer goods sector grew by 5.3 per cent only against 16.8 per cent a year-ago.

The dismal industrial performance led to immediate concerns by leading industrial chambers which renewed the demand for reduction in interest rates as they linked the poor show by the consumer goods sector to the high cost of credit.

The other factor impinging growth was said to be the appreciating rupee.

But news from another front has led to a glimmer of hope that the July performance was a temporary aberration.

Data available from other official sources indicate that excise collections in August were up nine per cent after growing at only two per cent in July this year.

This upturn in excise collections is being seen as a measure of improved industrial performance in August, data for which would be available next month.

Analysing the reasons for the July performance, Mr Rajeev Kumar, Director and Chief Executive of ICRIER, told Business Line that he did not see any demand side problem, that is, the growth was not low because of low demand.

“My hunch is it is supply side constraints. Apart from the high last year base, manufacturing has hit almost full capacity in many industries. Then, there are infrastructure issues,” he added.

Mr T.K. Bhaumik, Chief Economist, Reliance Industries, pointed to the high cost of money and said there was a big gap between RBI’s Bank Rate and the PLR of banks which needs to be addressed to bring down the cost of credit.

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