New Delhi: Industry continued to bear the brunt of rising interest rates as its growth plummeted to 3.8% in May against 10.6% a year-ago as both manufacturing and electricity generation rose by a decelerated rate.
This is the second month in a row this fiscal that the industry performed poorly with industrial growth, as reflected by the Index of Industrial Production (IIP), dipping to 5% in April-May against 10.9% a year-ago.
Manufacturing grew by a modest 3.9% in May against 11.3% a year-ago. However, consumer durables came out from negative growth to show 4.4 % rise against a fall of 0.7% in May 2007.
Electricity generation, a key resource for the economy, plunged to 2% from 9.4%.
“I think the downtrend will continue because of overall contraction in economy. Toplines are coming down because of higher interest rates and credit squeeze, while bottomlines are coming down because of higher wages,” ICRIER Director Rajiv Kumar said.
However, mining output showed an upward trend, growing by 5.2% in May against 3.8% a year-ago.
With inflation continuing to scale a new 13-year high and industry showing slackness, the RBI could be in a dilemma to boost growth or check inflation.
“It (industrial slowdown) is a matter of concern . It will pose further dilemma for policy makers,” Yes Bank Chief Economist Shubhada Rao said.
However, other analysts opined that the RBI is likely to go for tighter monetary policy to contain inflation, which may further bring down industrial growth.