Industrial output dips to 5.6% in August

Manufacturing sector, which accounts for 80 per cent of the factory ouput numbers and a key indicator of consumer demand, saw growth slip to 5.9 per cent from 10.6 per cent in August, 2009.

“(The trend is) a little disappointing. Let us see how it fares in annualised terms,” Finance Minister Pranab Mukherjee said on the sharp fall in industrial output growth. Growth in capital goods — used by the manufacturing segment — was a negative 2.6 per cent in August compared to a 9.2 expansion in the year-ago period.

India Inc believes the deceleration was owing to the tight monetary policy stance that has pushed up interest rates for corporates, as well as for retail customers, most of whom rely on loans or credit to buy auto or other consumer durables.

Mukherjee, though disappointed, asserted that the “Indian economy is on the path of robust growth led by increased investment and capital inflows, stronger industrial output and rising aggregate demand.” He expects annual industrial growth to be around 12-13 per cent, which could push economic growth to 8.5 per cent or more. The last time factory output growth was slower was in May 2009 (2.7 per cent).

Industry chambers were unanimous in their view that Reserve Bank of India should not raise policy rates any further as it could have a negative impact on consumer demand as well as corporate investment thereby slowing down economic growth.

Meanwhile, RBI Governor D Subbarao said “We will study (IIP numbers). I cannot make a
comment (just yet).” Of the 17 industry groups, as many as 14 have shown positive growth during the month of August. Meanwhile, industrial expansion figure for July was revised upwards to 15.2 per cent from earlier estimates of 13.8 per cent.

Industrial growth for first five months of this fiscal stood at 10.6 per cent in comparison to 5.9 per cent growth in the same period a year ago.