The government has been reiterating its focus on maintaining a balance between managing inflation with growth but it seems to be struggling on both fronts - inflation crossed 5% last week and the latest industrial output numbers released today show a sharp slowdown in growth.
Compared to an 11.6% surge last January, industrial production growth in January 2008 has more than halved to 5.3% hitting key "growth-driver" sectors: manufacturing, capital goods, mining, electricity and consumer durables (which actually saw negative growth).
While production numbers have been slowing down from the double-digit growth seen at the start of the financial year, the January data has shown the sharpest slump, indicating that the Reserve Bank of India's policy of holding lending rates for the past one year in the hope of managing inflation, is hurting.
While industrial production growth from April 2007 till January 2008 still seems reasonable at 8.7% compared to 11.2% in the same period last year, the devil lies in the details.
Capital goods production, the barometer for rising investment, production and consumption, has grown by a mere 2.1 per cent - not only is this the slowest growth in the sector since 2001, but also this is the first time that growth has slipped below 10%, after seeing double-digit growth for eighteen consecutive quarters.
Production of machinery equipment (excluding transport) has actually seen a negative growth of 3.8% compared to 10.1% growth in January 2007. Another sector that has seen negative growth and should be a cause of greater worry for a government that has been trying to spur domestic consumption is consumer durables production, down by 3.1% compared to over 5% growth seen last year.
Growth in manufacturing, which accounts for 15% of the Gross Domestic Product (GDP), has more than halved from 12.3% in January 2007 to just 5.9%.
In electricity and mining, growth has plummeted even more sharply - from 8.3% and 7.7% in January 2007 to 3.3% and 1.8% respectively.
The numbers sobered the mood at the stock market - the Sensex had opened almost 500 points above yesterday's closing level of 16,123 thanks to the news of the Fed's injecting $200 billion into the system but closed a mere four points up by the end of trading. Industry chambers reacted sharply as well. FICCI blamed the high interest rates that are affecting consumer spends on durables for the manufacturing sector's travails.
Source:The Indian Express,March-13-2008
