Industrial growth slows to 3.6% in Feb - Times Of India
Industrial growth slows to 3.6% in Feb
TNN, Apr 12, 2011, 02.05am IST
NEW DELHI: Industrial growth moderated to 3.6% in February, compared to 15.1% a year ago on account of a slowdown in manufacturing and mining sectors. Within manufacturing, the real culprit was capital goods, with production falling over 18% this February along with a slower pace of expansion in basic and intermediate goods.
Even the government seemed to be on the same page. "Our expectation is that the next month (March) will not be a good month. So, there is one more difficult month ahead for us which is the month of March... we will see no growth in the industrial sector. But I do expect a big turnaround in the month of April," chief economic advisor Kaushik Basu told reporters.
This is the fourth straight month when growth has remained below 4%. Though economists had expected growth to remain in low single digits, the numbers released by the Central Statistics Office on Monday were lower than their projections. Economists said part of the reason for the moderation was the base effect. Even in good times, industrial growth is 9-10% but with industrial output expanding 15% in February 2010, the base effect was a huge factor, economists said.
In addition, higher interest rates are affecting capacity addition decisions. "The impact of higher interest rates will play out through 2011," said D K Joshi, chief economist at rating agency Crisil. On Saturday, R P Singh, secretary in the union industry department, had said at a seminar that there was need to strike a balance between growth and inflation as very high interest rates could affect the former.
Economists also said that companies were waiting to gauge if the consumption boom would last and were doing so by using every bit of capacity available with them. The moment they face an even more severe crunch, they would automatically start expanding capacity even if interest cost remained high.
"Impact of environmental clearances and transportation bottlenecks in the coal sector, coupled with a high base effect, resulted in mining production slowing to 0.6%," added Citi economists Rohini Malkani and Anushka Shah. Notwithstanding the slower pace of expansion in industrial production, economists said that the central bank is expected to continue with its rate hike cycle. The overall expectation is that key policy rates would go up by another 25 basis points (100 basis points equal one percentage point) when RBI releases its annual policy next month. After all, they said, inflation is a bigger threat.
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