FY '11 industrial growth rate drops to 7.8%

The shrinkage in industrial production in the face of rising interest rate following tight monetary policy of RBI, is giving rise to the fear that industrial growth may fall further in coming months.

The overall production of industrial sector as measured in Index of Industrial Production (IIP) also posted lower growth rate of 7.3 per cent in March this year as against robust 15.5 per cent in the corresponding month of the previous year.

The industrial production as a whole has been witnessing decline in growth rate since last quarter of the fiscal 2010-11. As the analysis of data shows, the dismal performance in the industrial sector is primarily due to lack luster performance of the key manufacturing sector.

The manufacturing sector, which accounts for almost 80 per cent of the IIP, dropped to 8.1 per cent in 2010-11 from 11 per cent in the previous fiscal. Expressing concern over declining growth rate in the manufacturing sector, Ficci Director General Rajiv Kumar forecast that “Growth in the manufacturing sector is going to slow down in the coming months because commercial banks have raised interest rates further which will affect investments in the sector.”

The other key sector of the industry that witnessed sharp decline in the growth rate relates to that of the key capital goods segment. As the data show the growth rate of capital goods dropped drastically to 9.3 per cent in 2010-11 compared to impressive 20.9 per cent in the previous fiscal.

As experts say decline in capital goods growth rate indicates a slowdown in investment demand.However, comparatively consumer goods segment showed better performance. For instance, the production in the consumer non-durables segment moved up by 2.2 per cent in 2010-11 compared to a low of 0.4 per cent in 2009-10.

Though the consumer durables segment expanded by 20.9 per cent in 2010-11 it stood at a low level compared to 24.6 per cent growth rate in 2009-10. On the overall, consumer goods production expanded by 7.5 per cent in 2010-11 as against 6.2 per cent in 2009-10. The other worrisome feature of industrial production relates to drop in the growth rate of mining sector to 5.9 per cent in 2010-11 from 9.9 per cent in the previous fiscal.
Experts say decline in growth rate of mining sector is “an area of concern” as the growth of electricity and the manufacturing sector depends on the adequate availability of minerals.