Industry growth slows down
Jan. 12: The growth in India’s industrial production fell to an 18-month low of 2.7 per cent in November 2010 because of slower consumer spending. There is speculation that higher prices and increasing interest rates may be hurting consumer spending on goods such as automobiles, household appliances and even items of daily use. Economists caution however, against drawing any far reaching conclusion from data for a single month, which may be revised up in the future as well.
The growth in the Index of Industrial Production (IIP), was expected to be low for November as the last year’s figure was very high — so an increase over that would have been difficult. However, the growth slipped much more than what was expected because one segment – consumer goods — saw a drop of 3 per cent. “Earlier the volatility in the industrial production was due to swing in capital goods but this time it has been the consumer durables, which is a new twist to the industrial production story,” said Sunil Sinha, head and senior economist, Crisil.
Consumer goods consists of two segments: consumer durables (which include products like cars and refrigerators among others) and consumer non-durables (hair oil, tooth paste and cosmetic products among others) — both of which slowed down in November. The consumers durables which was growing by double digits throughout the year grew by just 4.3 per cent in November.
“Demand for consumer non-durables may have been affected by higher inflation,” says Mr. Arun Singh, economist with Dun and Bradstreet.
“Meanwhile, consumer durables may be facing the impact of interest rate hikes by the Reserve Bank,” he says. There is one other reason — the post Diwali slump in consumer spending. This year, Diwali fell on November 5 and the slump was seen in the eleventh month, whereas last year, it was in October. The slowdown in consumer non-durables — items of everyday use — is more worrying. It had been growing at a very slow pace since May 2010 and contracted by six per cent in November.
“We shall have to look into and take corrective measures so that IIP numbers revive in the remaining four months,” said the finance minister, Mr Pranab Mukherjee. Meanwhile, economists point out that a lower IIP may not be reason to panic because the number tends to fluctuate sharply, plus it is often revised upwards in the new estimates, the come after a few months.
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