Economic woes worsen, industrial growth dips to 2.7 percent

NEW DELHI - India’s industrial growth plunged to 2.7 percent in November from 11.3 percent in October, worsening the economic woes for the government struggling to find ways to control the soaring prices of essential commodities.

The index of industrial production (IIP) fell to 2.7 percent in November, the slowest growth since May 2009, according to official data released Wednesday.

Inflation is going up and industrial output going down - it will have an adverse impact but I am not coming to any premature conclusion, Finance Minister Pranab Mukherjee told reporters while reacting to the 8.6 percent slump in industrial output growth.

He said the sharp drop in industrial output was partly because of the base effect.

“Last year in the month of November there was a sudden jacking up, so base effect is also there, but that is no consolation. We shall have to look into it and take corrective measures, the finance minister said, adding that the situation was likely to improve in the coming months.

In the next four months the situation should improve. Let’s hope so, he said.

The IIP for October was revised upwards from 10.8 percent to 11.3 percent.

The sharpest fall during the month of November came in consumer non-durables, which showed a negative output of 6 percent compared to a growth of 36 percent in the like month in 2010.

Manufacturing, the biggest constituent in the IIP, grew at 2.3 percent against 12.3 percent in November 2009.

Slowing industrial production will put the government and the Reserve Bank of India in a fix when it comes to tackling inflation as hiking key interest rates was one of the foremost measures employed by the central bank last year.

However, Deputy Chairman of Planning Commission Montek Singh Ahluwalia said the November figure was an aberration and industrial output growth during the current financial year was likely to remain in double digits.

I don’t expect this to continue. The government has already taken a number of steps. I am very certain that what you see in December will get corrected in the coming months, Ahluwalia said, referring to inflation.

Ahluwalia said prices of essential commodities was likely to moderate next month as the government had taken a number of corrective measures.

“Some of those prices are already coming down. In the month of February, we will definitely see a different situation on pricing front for these sensitive commodities, he told reporters here.

Annual food inflation surged to 18.32 percent for the week ended Dec 25, 2010, as high cost of onions spread its effect to other vegetables as well.

Industry forums have expressed concern over the sharp decline in industrial output data.

“This should make the RBI more cautious about aggressive tightening at its forthcoming policy meet, Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), said in a statement.

“Concerns on inflation should be tackled on the supply side given that it is being driven by a limited set of food items where bottlenecks in distribution are the root cause of rising prices, Banerjee added.