New Delhi: India’s industrial output rose 11.1% in May, a slowdown from the previous month and year as demand for manufactured goods dropped, official data released on 12 July.
The slowdown follows a 13.6% gain in industrial output in April, the first month of the financial year, and an 11.7% gain recorded in May 2006.
For the year ended 31 March 2007, industrial output — which accounts for a quarter of the economy — rose 11.3% compared to 8.2% the previous year, helping the overall economy expand by a faster-than-expected 9.4%.
The industrial output slowdown follows moves by the Reserve Bank of India to tame inflation by rising benchmark interest rates nine times since late 2004 to put a dent in demand for credit.
The aggressive monetary tightening has brought wholesale inflation down to 4.13%, according to the latest figures, from a two-year high of nearly 7% earlier this year.
But it has also hit demand for autos, that are mostly bought with bank loans, as well as consumer durables. Car sales are continuing to show double-digit annual growth, but sales of motorcycles fell 17.2% in June from a year earlier, indicating higher borrowing costs are deterring consumers.
Maruti Udyog Ltd, India’s biggest carmaker, this month said it won’t be able to match last year’s sales growth. Bajaj Auto Ltd on 12 July reported a 18% decline in profit due to lagging sales and Hero Honda Motors Ltd delayed opening its third factory due to declining demand.
As per data released today, manufacturing, which makes up nearly 80% of the industrial output, rose 11.9% in May from a year earlier, while consumer goods output growth halved to 9.8%, even as mining gained 3.7%.
Growth in industrial output has also been hit by weak exports, a fallout of the rising rupee. Exports rose 18% in May after increasing 23% in the previous month.
“We expect this momentum to remain strong until June. However, we expect growth to moderate from (fiscal) Q2 onwards with exports likely slowing down and credit offtake witnessing softness,” said Shubhada Rao, chief economist with Yes Bank.
“We believe that RBI will maintain an extended pause in interest rate stance.”