RBI concerned over sharp fall in IIP

For second month in a row,factory production numbers almost halved to 4.4 pct in September.

Reserve Bank Deputy Governor Subir Gokarn on Saturday expressed concern over the sharp fall in factory output growth,saying the latest numbers are disconcerting.

However,he was quick to add that the other key indicators such as the corporate earnings and tax collection numbers show that the recovery process is on track,though they may not be as explosive as it was some quarters back.

8220;The IIP index of industrial production is suggesting somewhat of a deceleration in the growth process. 5.5 per cent in August and 4.4 per cent in September,a lot of that deceleration is coming in from a sharp decline in capital goods,which,of course,must raise some concerns,8221; Gokarn told a CFO Chief Financial Officers Summit organised by the Indian Industries here on Saturday.

8220;Whether this deceleration reflects a slowdown in investment activities? If that is the case,is it reflecting the cost of funding,is it reflecting weaker expectations of future growth or a combination of the two? All of these is a matter of concern,8221; the Deputy Governor further said.

For the second month in a row,the factory production numbers almost halved to 4.4 per cent in September,which is a 16-month low from 8.2 per cent in the year-ago period.

The September figure is the lowest since the recovery got underway and reflects a slowdown in demand across the sectors,as interest rates rose in response to RBI8217;s tight monetary moves.

Even the revised August numbers at 6.3 per cent are way off the comfort level of the Finance Ministry,which is eyeing an over 8.5 per cent GDP expansion this fiscal.

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Stating that IIP numbers alone are not the true indicators of the growth picture,Gokarn said,8221;The other indicators are not so negative. If we look at tax collections and corporate earnings,things don8217;t look so bad,don8217;t suggest a massive meltdown.

8220;Both these numbers suggest that there may not be an explosive momentum in production but there is a robustness to it.8221;