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Industrial output growth slows to 3.7% in January

New Delhi: Deceleration in manufacturing and mining sectors pulled down the factory output growth rate to a meagre 3.7 percent during January, possibly prompting the Reserve Bank to take a re-look at its policy of monetary tightening to contain rising prices.

The industrial growth, measured in terms of index of industrial production (IIP), was 16.8 percent in January last year, making it a daunting challenge to maintain the expansion momentum during the same period of this fiscal due to the high base.

Meanwhile, the IIP for December 2010, has been revised upwards to 2.5 percent, from 1.6 percent.

During April-January period of current fiscal, Industrial growth slowed to 8.5 percent, from 9.5 percent in the previous financial year.

“IIP has come down and average is now 8.3 percent in 10 months. It is better. But I am still not happy,” Finance Minister Pranab Mukherjee told reporters here.

Echoing similar views, Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “IIP growth rate for January is little bit higher (than December), but it is still not as good as it should be. Overall slowdown for the last 2-3 months is a matter of concern.”

Experts said with this sluggish growth in IIP, the Reserve bank may not go in for another round of rate hike immediately.

“The manufacturing output is still sluggish and the industrial growth is yet to reflect continuous momentum another rate hike by RBI may dampen future growth prospects more than its impact on moderating inflation,” Deloitte (India) Principal Economist Shanto Ghosh said.

Despite a better show over December, factory output was low in January as capital goods contracted by 18.6 percent. The sector had expanded by a robust growth of 57.9 percent in January, 2010.

Besides, manufacturing sector growth plummeted to 3.3 percent from 17.9 percent a year ago. Also mining growth was a dismal 1.6 percent in January, against 15.3 percent YoY.

On the whole, 14 out of 17 industry groups achieved positive growth in the first month of 2011.

“IIP came in better than expected, but overall trend shows moderation is underway. Soft patch in investment activity continues as reflected in the capital goods segment,” Edelweiss Securities Head-Research Nischal Maheshwari said.

However, some experts believe the IIP numbers would provide room for the RBI to go ahead with its tight policy stance of controlling inflation, which is still above the comfort level of 5-6 percent.

“The RBI’s bias appears to prioritise inflation management over growth. We expect the RBI to hike the key policy rates (repo and reverse repo) by 25 basis points each during its mid-quarter review of monetary policy,” Barclays Capital said in a research note.

The Reserve bank has already hiked policy rates seven times since March 2010 to tame inflationary pressure.

The central bank is expected to come up with another round of rate hike in its mid quarterly policy review next week. The overall inflation in January was 8.23 percent.

During January, electricity generation output rose by 10.5 percent compared to 5.6 percent growth in the same month last year.

Besides, production in the consumer non-durables segment grew by 6.9 percent during the month under review.

It had contracted by 7 percent in the same period a year ago.

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