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Hints of economic slowdown?

Latest data from the Central Statistical Organisation (CS0) cast doubts on the sustainability of the robust growth momentum seen over the recent past. Growth in overall industrial production during July at 7.1 per cent was sharply lower than the 13.2 per cent recorded during the same month last year. Equally significantly, there has been a decelerating trend since the beginning of this year. During April, the industrial production index rose by 11.3 per cent and in May by 10.9 per cent. The next two months saw the figure drop to a single digit. The performance in July has been the lowest since October 2006 when the index slumped to 4.4 per cent. During 2006-07, the manufacturing and services sectors recorded a 11 per cent growth, and this largely neutralised the shortfall in agriculture and lifted the overall GDP growth rate to 9.4 per cent. During the first quarter of 2007-08, the GDP grew, somewhat unexpectedly, by as high as 9.3 per cent, once again on the back of strong performances by manufacturing and services; there was of course a modest revival in agriculture too. It is in this context that the first signs of a possible slowdown in manufacturing can be interpreted as the harbinger of a lower, but still healthy, GDP growth this year. In fact many — admittedly conservative — forecasts, including one by the Reserve Bank of India, place economic growth at 8.5 per cent.

No one is betting on the tempo picking up any time soon. Data on six key infrastructure industries released simultaneously seem to corroborate the slowdown in manufacturing. Their growth rate fell sharply to 6.3 per cent in July, down from 10.9 per cent last year. Banks have been reporting a slowdown in credit disbursements. Although the RBI has set a lower target for credit offtake this year, there are indications that high interest rates along with other monetary tightening measures are beginning to impact on manufacturing growth. Further, there are the deleterious consequences of the sharp rupee appreciation. Merchandise exporters as well as those in services exports are reporting lower margins. The consumer goods sector has grown at a slower pace this year, with the consumer durable segment showing a negative growth of 3.2 per cent. It is possible that in the wake of normal monsoons and with the festival season round the corner there could be some recovery. However, one cannot be so sanguine about the other sub-segments that have reported either a negative or a sharply lower growth.

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