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Industrial growth decelerates to 3.7 per cent in January

Special Correspondent


The capital goods segment pulls

down manufacturing sector's growth


NEW DELHI: Industrial growth turned sluggish in January this year to post a meagre increase of 3.7 per cent as compared to a robust expansion of 16.8 per cent achieved during the same month in 2010. The sectors mainly responsible for the tepid overall growth, as measured by the Index of Industrial Production (IIP), were manufacturing and mining which witnessed significant deceleration in output.

According to the official data, while growth in manufacturing slumped to 3.3 per cent in January from 17.9 per cent a year ago, the mining sector also put up a dismal show to post an increase of 1.6 per cent as against 15.3 per cent in the same month in the previous year.

In manufacturing in particular, the main laggard that pulled down the sector's growth significantly was the capital goods segment which saw a contraction of 18.6 per cent as compared to a healthy expansion of 57.9 per cent recorded in January last year. In fact, this aspect of an apparent halt in capacity expansion by industry is being highlighted by apex chambers as reason enough for the Reserve Bank of India (RBI) to take a cue and go slow on its monetary tightening measures.

The flip side

On the flip side, while the markedly lower year-on-year IIP growth in January 2011 — though an improvement over the revised growth figure of 2.5 per cent (up from 1.6 per cent) pegged for December last year — is a cause for concern, the fact remains that the latest growth numbers also appear dismally low owing to the statistical anomaly of high base effect in view of the robust numbers for January last year.

Be that as it may, the net effect is that the low growth in January has led to a slowdown in industrial expansion during April-January period this fiscal as compared to the 9.5 per cent increase achieved in the previous financial year. This is despite the fact that electricity generation went up by 10.5 per cent in January this year as compared to an increase of 5.6 per cent in the same month last year. Alongside, the consumer non-durables segment in manufacturing also performed better to grow by 6.9 per cent as compared to a contraction of seven per cent a year ago. In all, 14 out of the 17 industry groups saw positive growth in January 2011.

Commenting on the growth numbers, Finance Minister Pranab Mukherjee said: “IIP has come down and average is now 8.3 per cent in ten months. It is better. But I am still not happy.” Voicing almost identical 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.”

In fact, it is this concern that industry associations have been voicing for quite some time and has turned out to be a major dilemma for the apex bank as well.

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