Growth engine runs out of steam, logs 5.3% in Jan

NEW DELHI: Giving credence to fears that the country may be slipping into a slow-growth phase, industrial production figures released by the government on Wednesday painted a gloomy picture of the state of the economy. Growth in industrial production fell sharply in January to 5.3% from 11.6% in January 2007, thanks to a slowdown in consumer durables in capital goods. The index of industrial production (IIP) had showed some bounce in December 2007 with a 7.6% growth.

The latest data comes at a time when fears of a US recession is gaining momentum even as commodity prices reach record highs. The consumer durables segment, which has been largely growing at a slow pace in the past few quarters, moved into the negative territory , once again (it was negative in September 2007) driven by a sharp fall in sales of two-wheelers , thanks to a credit squeeze.

But the slowdown in capital goods came as a surprise to many, which grew at 2.1% in January 2008, compared with the 16.3% growth in January 2007. Making things more difficult was the decline in growth in both intermediate and basic goods. A fall in capital goods production is what worried economists the most. ���Growth in IIP is much lower than expectations. What came as a surprise is the steep correction in the capital goods segment,��� said Crisil chief economist DK Joshi. But the house is divided on whether there is an actual slowdown.

���If you have grown in double digits for the last three years, you can���t drop to 2.1% just like that. This is not a fashion industry. It is not a consumer durable, it���s not even susceptible to seasons or monsoons. So, this seems to be an aberration,��� said The Centre for Monitoring Indian Economy (CMIE) chief economist Mahesh Vyas. The optimism is echoed by engineering major Bhel. ���Main consumers of capital goods like power are growing at over 25%. We hope the quarterly figures would be in a comfortable zone,��� said Bhel CMD K Ravi Kumar.

Overall, consumer goods maintained a healthy 7% growth, considering the higher base of 8.2% in January 2007. The growth was driven by a sustained spend in consumer non-durables like FMCG goods. The better performance of consumer non-durables has managed to offset a negative growth in consumer durables in January 2008.