India Inc worried as industrial growth remains slack (Roundup)

June 12th, 2008 - 7:40 pm ICT by IANS  

New Delhi, June 12 (IANS) With India’s industrial production growth slowing once again to seven percent for April against 11.3 percent for the like month last year, the corporate sector has expressed worry, especially as the news came against the backdrop of a further tightening of monetary policy. Data on the Index of Industrial Production (IIP) released here Thursday showed that the growth of the manufacturing sector, that has the maximum weight in the index, was just 7.5 percent in April, against 12.4 percent in the like month of last fiscal.

For the year as a whole, industrial production growth was 8.3 percent for fiscal 2007-08, as against 11.6 percent in the previous fiscal.

The worrisome data came against the backdrop of India’s central bank hiking its short-term interest rates to 8 percent Wednesday in a bid to tame inflation - a move that experts feel could, in turn, trigger interest rate hikes by commercial banks.

“Monetary policy has to respond pro-actively to immediate concerns,” the Reserve Bank of India (RBI) said in a statement Wednesday.

“At the same time, it is critical at this juncture to demonstrate, on continuing basis, a determination to act decisively, effectively and swiftly to curb any signs of adverse developments in regard to inflation expectations.”

The central bank was forced to take the monetary measure as India’s annual rate of inflation jumped to a 45-month high of 8.24 percent for the week ended May 24, against 8.1 percent for the previous week.

Since the data on the wholesale price index pertained for the week ended May 24, the inflation rate did not reflect the steep hike in prices of transport and cooking fuel announced last week, expected to add 80 basis points to the inflation rate.

“In the last one year industrial growth has lost momentum largely due to factors such as an appreciating Rupee, high interest rates and rising cost of inputs,” said the Federation of Indian Chambers of Commerce and Industry (Ficci).

The chamber, nevertheless, believes some industries, notably consumer durables, were showing signs of recovery and that it was for policy makers to ensure that this spreads over to all sectors.

“Now when the industrial sector is showing signs of recovery, it is time to take fresh steps to further encourage the growth of the industrial sector,” a Ficci statement said.

However, rating agencies like Moody’s predict that India’s central bank may hike interest rates further to keep a check on spiralling prices, while predicting an economic slowdown.

“Amid tight monetary policy conditions which weigh on household consumption and business investment, the Indian economy looks set to slow this year,” Moody’s Economy said in a report.

“Moody’s expects GDP (gross domestic product) growth to decelerate from an impressive 8.9 percent in 2007 to around 8 percent in 2008,” the agency said.

“The biggest challenge facing central banks across Asia is to cool inflation without hurting economic growth. The RBI is no exception,” said the agency’s report, prepared by its economist Sherman Chan based in Sydney.

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