Sat, Jul 12 01:20 AM
The spectre of an industrial slowdown looms large over the Indian economy as factory output fell to its lowest in six years amid the persistently rising inflation rate that inched to the 12 per cent mark, dashing hopes of any monetary loosening to boost aggregate demand. The latest price and industrial output data found reverberations in bourses.
The benchmark BSE Sensex closed 456 points down, reflecting dipping investor sentiments. Taming of inflation and maintaining a robust industrial growth will remain a key priority both for the government and the Reserve Bank of India (RBI) for quite some time.
Economists said the slower manufacturing production and capital goods output growth were signs of investment peaking out. Industrial output grew by 3.8 per cent in May from 10.9 per cent a year ago.
What's more, most broad sectors grew at a significantly slower clip as compared to that in the last year. Output was sharply less than previous month's revised 6.2 per cent.
"Investment has definitely come down during the last quarter. In June, about 15 per cent planned projects took off, compared to a normal project commencement ratio of 30 per cent," said Yashika Singh, head, Economic Analysis Group, Dun and amp; Bradstreet Information Services India.
Manufacturing production grew by 3.9 per cent in May from a year-ago and capital goods output growth rose to 2.5 per cent annually, compared with a sizzling 22.4 per cent a year ago. "Investments appear to be peaking out, and I expect industrial output growth to be much lower than that of last year," said D.K. Joshi, principal economist with credit rating and consulting firm Crisil.
Economists also saw slower industrial growth this year as the RBI grapples with policy options to conquer a runaway price line. "There is a possibility that the RBI will further increase its policy rates," said Standard and amp; Poor's Singapore-based primary credit analyst Takahira Ogawa.
The Wholesale Price Index based inflation rate stood at 11.89 per cent for the week ended June 28, the highest in 13 years. The government, however, exuded confidence that prices would stabilise soon.
"Prices of essential commodities which include food grains, pulses, edible oils, vegetables, dairy products and some other commodities, including kerosene, soap and safety matches, have more or less stabilised," the finance ministry said in a statement.
