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Capital goods drag industrial output to 5.3%

Capital goods drag industrial output to 5.3%
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First Published: Wed, Mar 12 2008. 11 23 PM IST
Updated: Wed, Mar 12 2008. 11 23 PM IST
New Delhi: The annual growth of Indian industrial production decelerated to 5.3% in January from 7.7% in December, as factories turned out fewer consumer durables and capital goods, responding to slowing demand from high interest rates. As a result, average growth of output at factories, utilities and mines in the first 10 months of the fiscal year ending 31 March dropped to 8.7%, compared with 11.2% in the same period last year.
The Reserve Bank of India has hiked rates nine times since October 2004 and also curbed banks’ ability to lend. With inflation crossing 5% at February-end, most experts have ruled out the possibility of a rate cut in April when the central bank announces the monetary policy for 2008-09.
Manufacturing industries, which account for 79.35% of the Index of Industrial Production (IIP), grew at 5.9% in January compared with 12.3% a year ago. While production across all manufacturing sectors has been affected, the surprising highlight of January is that, for the first time, capital goods production growth has fallen to 2%, against 16.6% in December and 16.3% the same time last year.
“It would be too early to say that capital goods production has slumped though it is natural that, since overall industrial production is trending down, there would be an impact on this sector too,” said Dharmakirti Joshi, principal economist with rating agency Crisil Ltd.
Mining growth at 1.8% has almost halved from December’s 3%, while core sector IIP fell to 4.5% from 7.8%. Morgan Stanley Asia economist Chetan Ahya said, “The key contributors to this...were machinery and equipment, which decelerated by 3.8% in January compared to a growth of 10.7% in December. There was also a very sharp decline in basic chemical and chemical products and wood and wood products.” Still, for the first 10 months, the capital goods sector has clocked an average growth of 18.3%, which is the same as in the corresponding period last fiscal. “It is only the capital goods sector output that is pulling the overall IIP growth,” said N.R. Bhanumurthy, associate professor, Institute of Economic Growth (IEG).
While IEG expects industrial production to grow 6-7% in the next three months, Crisil expects 8-8.5% for all of 2007-08. “Softening in industrial production, if it continues at this pace, would pose a serious problem to Indian growth outlook down the year,” said Manas Paul, economist, HSBC.
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First Published: Wed, Mar 12 2008. 11 23 PM IST
More Topics: Iip | Industrial | Growth | Consumer | Production |