New Delhi: In a jolt to the growth story, industrial output rose 6.4% in September, compared to a 12% increase in the corresponding period last year, as high interest rates and the rising rupee pulled down production in the consumer goods and durables segment.
Higher oil prices and turmoil in the US and European markets also added to the woes resulting in the industrial sector clocking its slowest growth in nearly a year.
But government and economists are seeing the low growth as a temporary phenomenon with industry predicted to bounce back in the coming months. The fears of a slowdown have grown stronger after trade data, released at the start of the month, revealed that imports rose just 2% despite an appreciation of the rupee and oil prices inching towards $100 a barrel.
On Sunday, a CII study covering 91 manufacturing segments showed that 17 sectors saw production fall in the first half of 2007-08, while another 37 reported single-digit rise in output. In July, IIP had risen 7.1% though data was revised upwards later.
“I will be loathe to draw conclusions from a month’s data. One has to take a slightly longer term view... Both industry and services as sectors will record growth rates between 9% and 10%, perhaps closer to 10%. That means about 83% of your economy is growing between 9% and 10%,” finance minister P Chidambaram said.
“What’s worrying is the reduction is very sharp. But this is a monthly aberration or a statistical blip. Else what explains the higher order book position and strong investment,” said D K Joshi, principal economist at rating agency Crisil.
Sources in the consumer durables sector, which, according to the index of industrial production data released on Monday, saw output fall 7.6% during September and 3.2% during the first half of the year, believe that the numbers do not provide the actual picture.
While two-wheeler sales have dipped, consumer electronics has seen a strong growth in the first half, industry players said. According to data compiled by market research agency ORG, during January-September, segments such as television sets grew by 12%, while refrigerators rose nearly 15%.
Sale of flat display TV sets — liquid crystal display and plasma — is estimated to have increased nearly 40%, while air-conditioner sales were up 54% during the first nine months of 2007.
Though the IIP data showed a 0.6% drop in consumer goods production in September and a 5.3% rise in the first half of the financial year, consumer goods companies said their sales registered double-digit growth during April-September.
While high interest rates have meant that consumers defer purchase of two-wheelers resulting a 9.5% drop in sales, a 12.5% rise of the rupee against the dollar in the last 12 months seems to have not just hit exports but could have affected domestic production since imports became cheaper.
While Chidambaram said that the global turmoil had hit exports to some markets, high oil prices too seem to be taking a toll on industrial output.
But economists seemed confused with how the various factors were at play. For instance, the appreciation of the rupee could be blamed for slow growth in textiles sectors, but leather, another currency sensitive sector, does not seem to have been affected at least in September.
Similarly, while interest rates have slowed down real estate, wood and wood products production shot up over 70% on account of higher construction activity