Industrial output growth slumps in November

India's industrial output growth eased sharply in November compared to the previous month, as a high base of last year and a series of interest rate increases adversely affected the performance of Manufacturing, Mining and Electricity. The industrial output, as measured by the index of industrial production (IIP), stood at 2.7% in November versus an upwardly revised 11.3% in October, the Union Commerce & Industry Ministry said. October's IIP reading was revised up from a provisional estimate of 10.8%. The November's IIP reading surpassed consensus expectations of a 6-6.5% growth. India's industrial production had expanded by 11.3% in November 2009. Year-to-date (April-November 2010-11), India's industrial production stood at 9.5% versus 7.4% in the corresponding period of the previous financial year.



In terms of industries, 9 out of the 17 industry groups showed positive growth during November compared to the corresponding month of the previous year. ‘Transport Equipment and Parts’ showed the highest growth of 15.6%, followed by 12.6% in ‘Leather & Leather Products’ and 9.6% in ‘Other Manufacturing Industries’. On the other hand, ‘Wood & Wood Products’ showed a negative growth of 27.4% followed by 17.5% in ‘Jute & Other Vegetable Fibre Textiles (except cotton)’.

Output of Basic Goods in November was up by 4.5% while the same in Capital Goods rose by 12.6% and in Intermediate Goods was up by 2.4%. The year-ago growth in these sub-segments stood at 6%, 11% and 19.4%, respectively. Output of Consumer Durables and Consumer Non-durables recorded a growth rate of 4.3% and (-)6%, respectively, with the overall growth in Consumer Goods being (-)3.1%. The year-ago growth in Consumer Durables, Consumer Non-durables and Consumer Goods stood at 36.3%, 2.3% and 10.1%, respectively.

Reacting to the latest IIP data for November 2010, Finance Minister Pranab Mukherjee said that industrial output may improve in the next four months. He went on to add that high inflation and weak IIP data were cause for concern and that the Government was examining ways to shore up industrial production. Industrial output growth for the current fiscal year (2010-11) ending in March could be around 10%, deputy chairman of the Planning Commission Montek Singh Ahluwalia said.

The Reserve Bank of India (RBI) is expected to increase key policy rates by 25 basis points (bps) when it meets on Jan. 25, in its efforts to rein in inflation around its projected level of 5.5% by end-March. The RBI raised its key rates six times last year and economists expect rates to rise by another 50-75 bps in 2011.