Industrial growth drops to 1.6 pc in Dec; lowest in 20 months

New Delhi, Feb 11 (PTI) India's industrial expansion
plunged to a 20-month low of 1.6 per cent in December,causing
a blip in India's growth track, but policy makers remained
unfazed on the prospects of robust GDP numbers for the current
fiscal.
Though the December factory output growth has somewhat
"disappointed" Indian Finance Minister Pranab Mukherjee,
experts are not surprised in the backdrop of a very high
expansion a year ago.
The Index of Industrial Production (IIP) had grown by 18
per cent during the same period last year, making it a
daunting challenge to maintain the expansion momentum this
fiscal due to the high base.
Industrial growth during April-December this fiscal stood
at 8.6 per cent, unchanged in comparison to the corresponding
period of the previous year, official data released here on
Friday showed.
The "disappointing" numbers came just days after the
Government's prediction of "encouraging" 8.6 per cent economic
growth this fiscal, against 8 per cent in 2009-10.
Meanwhile, the IIP for November has been revised upwards
to 3.6 per cent from the earlier estimate of 2.7 per cent.
The manufacturing segment, which has a weight of about 80
per cent on the IIP, managed to grow barely by one per cent in
December from a huge 19.6 per cent a year ago.
The capital goods sector, reflecting investment,
contracted to (-)13.7 per cent in December, 2010 versus
impressive 42.9 per cent expansion a year ago.
"Monthly and weekly numbers do not reflect correct
picture. Therefore you shall have to take the whole year into
account. Let us see how it reflects in the annual picture,"
Finance Minister Pranab Mukherjee said though, he termed the
December numbers as "very unfortunate and disappointing".
Similar views were expressed by Indian Planning
Commission Deputy Chairman Montek Singh Ahluwalia who said
month-on-month fluctuations in IIP should not be a cause of
concern as the economy, as a whole, was on a healthy growth
track.
"In order to achieve 8.5 GDP growth, 8 per cent
industrial growth for the whole year (2010-11) is enough,"
Ahluwalia said.
Rajrishi Singhal, Head (Policy & Research) of Dhanlaxmi
Bank said the 1.6 per cent growth should be seen in the
context of a very high base of 18 per cent expansion recorded
in December 2009. However, he was concerned over deceleration
in the capital goods sector.
"Decline in capital goods manufacturing shows that
investments is missing. There is need to step up investments
in the infrastructure sector for 8.5 per cent growth," Singhal
added.
Meanwhile, Mining growth fell to 3.8 per cent in
December, from 11.1 per cent in the same period of the
previous year.
Electricity generation grew by 6 per cent in the month,
compared to 5.4 per cent in December, 2009.
In terms of industries, 12 out of 17 industry groups
achieved positive growth in the last month of 2010.
The data also revealed that consumer non-durables
production contracted by 1.1 per cent in December.
Industry chamber Federation of Indian Chambers of
Commerce and Industry (FICCI), said the large base effect may
have been one of the causes for sharp slowdown of the
manufacturing sector.
Besides, rising interest rates on tight monetary policy
and partial exit from the stimulus could be responsible for
the declining trend.
"We add a cautionary note on further tightening of
monetary policy and exit from the stimulus," chamber
President Rajan Bharti Mittal said.
Ahead of the Union Budget, it is apprehended by the
industry that the Finance Minister may roll back some of the
stimulus measures which were announced in 2008 and 2009 during
the global financial crisis.
Assocham felt that high inflation could have impacted the
industrial growth.
"Indian industry has been facing hyper inflation
conditions for over a year," Assocham President Dilip Modi
said suggesting restoration of of some of fiscal stimulus
incentives which were withdrawn in 2010-11.
Research firm ICRA (Internet Content Rating Agency) said
a continuing high base effect is likely to keep IIP growth low
over the coming few months.
ICRA's economist Aditi Nayar, however expects that like
November, the Decembers' IIP too would be revised upwards.
Commenting on the IIP numbers, Indian Commerce and
Industry Minister Anand Sharma said that although there are
some concerns related to capacity addition in the
manufacturing sector, the overall growth of the industrial
production would not be less than that of last fiscal
(2009-10).
"...when we are talking of 1.6 per cent IIP, it doesn't
mean that we are going to register very weak growth. Yes,
there are certain areas of concern that capacity addition is
not taking place as it should but overall the year end figures
would be still higher than the last year's figures," he said.
On the availability of credit with banks, Sharma said
that RBI will ensure the flow to the industry.
"Adequate funds are available with the banks and there
should be no problem of lending to the industry," the minister
added.