Industry growth dips to 3.8 percent, inflation zooms to 11.89 percent (Roundup)

July 11th, 2008 - 6:19 pm ICT by IANS  

New Delhi, July 11 (IANS) India’s economic woes have been further compounded with headline inflation zooming to 11.89 percent for the week ended June 28, and industrial production rate plummeting to 3.8 percent in May — against 10.6 percent in the corresponding period last year. The two official figures released Friday paint a potholed way ahead for India, Asia’s third largest economy after China and Japan.

“The industrial production rate or index of industrial production (IIP) at 3.8 percent in May against 10.6 percent in the previous corresponding period shows all is not well with the Indian economy, which grew at the rate of 9 percent in 2007-08,” said a Planning Commission official, who did not wish to be identified.

The commerce and industry ministry Friday also released the latest inflation data based on wholesale price index (WPI), which showed an increase of 0.9 percent in the index of primary articles.

The finance ministry played down the situation, describing the rise in inflation as “marginal”. In a statement, it also said that prices of various articles had “more or less stabilised”.

But to D.K. Joshi, chief economist with Mumbai-based Credit Rating Information Service of India Limited (Crisil), the slowdown has come as a shocker.

“Such a sharp slowdown in industrial production growth has come as a shocker. Though slowdown was expected, but not to this level. It is surprising,” Joshi told IANS.

He, however, did not find increasing inflation so surprising.

“Inflation figures are not surprising at all, because of the trends we have been seeing for the past few weeks,” Joshi said.

“Supply side shocks are the primary drivers behind inflation. Demand side pressures have considerably come down due to tightening of the monetary policy,” he said.

India’s leading economists like Planning Commission deputy chairman Montek Singh Ahluwalia have already submitted that the economy would grow at the rate of 8 percent or marginally less in view of raging inflationary trends.

Terming sluggish industrial output for May as “disappointing”, the global rating agency Moody’s said deceleration in production has raised “concerns about the manufacturing outlook for the second half of 2008″.

“India’s industrial output for May was disappointing,” said Sherman Chan, an economist with Moody’s.

The Index of Industrial Production (IIP) figure released by the Central Statistical Organisation (CSO) of the ministry of statistics and programme implementation showed that cumulative growth in industrial production declined to five percent in April-May 2008-09, from 10.9 percent in the corresponding period last fiscal.

The electricity sector registered only a two percent growth in May this year against 9.4 percent during the corresponding period last fiscal. The growth in manufacturing sector dipped to 3.9 percent against 11.3 percent in May 2007-08.

The only sector that registered an increase in growth rate is mining, which logged a 5.2 percent growth in this May, compared to 3.8 percent in May 2007-08.

Crisil’s Joshi said industrial production rate would inch up to 7 percent in the weeks to come.

“Slow growth and high inflation cannot go hand in hand. Industrial production is expected to inch up to 7 percent in the near future, and GDP will grow at around 7.8 percent in the current fiscal,” Joshi said.

Said Atulan Guha, assistant professor at the Delhi-based Institute for Studies in Industrial Development (ISID): “Cost of production goes up because of inflation which impacts industrial production.”

“The industrial growth is driven by investment and since the future is not clear because of high inflation, investment has slowed down lately,” Guha told IANS.

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