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Industrial growth has plummeted to an 18-month low of 2.7 per cent in November.
The lower year-on-year rise in the official Index of Industrial Production (IIP) in November — compared with 11.3 per cent for the same month of last fiscal — poses a major dilemma for policymakers, already under siege from rising prices. Any further monetary tightening measures aimed at inflation control now also run the risk of derailing growth.
The markets, in fact, staged a relief rally reacting to the latest IIP numbers apparently interpreting it as easing pressure on the Reserve Bank of India to excessively raise interest rates. The general belief is that the central bank, even while maintaining a hawkish stance on inflation, would settle for a 25 basis point rate hike in January 25 policy review.
The sharp moderation in factory output “should make the RBI more cautious about aggressive tightening at its forthcoming policy meet,” said Mr Chandrajit Banerjee, Director-General, Confederation of Indian Industry.
Manufacturing dips
The deceleration in November was mainly on account of manufacturing, which recorded a year-on-year increase of just 2.3 per cent, as against 12.3 per cent in November 2010. The mining and electricity indices, too, grew modestly by 6 per cent (10.7 per cent) and 4.6 per cent (1.8 per cent), respectively.
Within manufacturing, the slowdown has been led by consumer goods. Both consumer durables as well as non-durables returned lower growth rates in November 2010 relative to their November 2009 levels: 4.3 per cent versus 36.3 per cent and minus 6 per cent versus 2.3 per cent.
The story was the same for basic (4.5 per cent against 6 per cent) and intermediate goods (2.4 per cent against 19.4 per cent) as well. The only consolation was in capital goods, which is seen as a proxy for investment activity in the economy. The 12.6 per cent annual production increase for November came on top of an 11 per cent growth in the same month of 2009.
For the April-November period as a whole, industrial growth averaged 9.5 per cent, which was better than the 7.4 per cent for the first eight months of 2009-10. While the cumulative growth worked out higher for manufacturing (10 per cent versus 7.5 per cent), it was lower in the case of both mining (8 per cent versus 8.4 per cent) and electricity (4.5 per cent versus 5.7 per cent).
Among individual use-based manufacturing groups, the average April-November production growth stood at 22.5 per cent for capital goods (against 6.6 per cent during April-November 2009), with these correspondingly being 21.7 per cent (20.6 per cent) for consumer durables, 0.7 per cent (1.2 per cent) for consumer non-durables, 9.6 per cent (11.2 per cent) for intermediate goods and 5.8 per cent (5.8 per cent) for basic goods.
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