IIP growth plummets to 4.4 pc in September

Just as concerns over economic recovery were beginning to ease,industrial growth dropped for a second straight month.

Just as concerns over economic recovery were beginning to ease,industrial growth dropped for a second straight month in September mounting pressure on the central bank to hold interest rates for a while. Official data released on Friday revealed that industrial production more than halved in September 2010 to a mere 4.4 per cent from a healthy 8.2 per cent in September 2009 as production across all sectors plummeted. However,on a cumulative basis in the first six months of the fiscal,the index for industrial production,or IIP,remained in double digits at 10.2 per cent as compared with 6.3 per cent a year ago.

Capital goods sector saw the sharpest decline in production and contracted by 4.2 per cent in September as against a growth of 7.9 per cent in the same month last year. A worried government refused to draw any conclusions. We will have to analyse why that is happening. And after that considered comments can be made. But its a matter of concern, finance minister Pranab Mukherjee said. The countrys chief statistician TCA Anant echoed similar views and said,I expect to see overall IIP growth this fiscal close to 10 per cent because of onset of festive season and agriculture produce hitting market in November,December and January. He was also confident of 8.5 per cent economic growth this fiscal on the back of better farm production.

However ,analysts said the numbers affirmed a weakness in investment cycle that could possibly derail growth. Jahangir Aziz,chief economist at JP Morgan India pointed out, The drop in capital goods production just points to the real weakness in the Indian economy,which is the lack of corporate investment. Its been the same story for some time now. If there isnt a significant turnaround in corporate investments very soon,then it would be difficult to clock an 8 per cent GDP growth this fiscal,although we may probably get a 9 per cent growth next year. Yes Bank chief economist Shubhada Rao agreed and said,The investment cycle has somewhat softened in the context of global scenario,which has brought down moderation in IIP. It is also partly a function of some monetary policy tightening.

Stock markets too reacted sharply with the 30 share sensitive Bombay Stock exchange Sensex dropping by 432 points to end at 20,156.89 points. The yield on the 10-year benchmark bond fell to 8.07 per cent after the industrial data was released bu ended the day at 8.08 per cent,the same as Thursdays close.

With the decline in inflation,analysts expect the central bank RBI to pause on monetary tightening at present. This will also help the RBI to stick to its decision of not raising policy rates, said Samiran Chakraborty,chief economist at Standard Chartered Bank. I expect the RBI to start hiking rates by January again and expect about a 75 to 100 basis point rise in interest rates in 2011, Aziz said

Among sectors,manufacturing,which constitutes almost 80 per cent of the industrial production,grew at 4.5 per cent in September,against 8.3 per cent a year ago,while electricity generation expanded by a miniscule 1.7 per cent against 7.5 per cent. Meanwhile,consumer durable goods production declined by 10.9 per cent in September against 21.9 per cent a year ago,consumer non-durables by 2.5 per cent compared to 3.9 per cent,intermediate goods by 10.3 per cent against 10.6 per cent and basic goods by 5.5 per cent against 6.1 per cent in the year-ago period.