Factory output growth hits 2-year low in September | business | Hindustan Times
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Factory output growth hits 2-year low in September

business Updated: Nov 12, 2011 01:45 IST
HT Correspondent
HT Correspondent
Hindustan Times
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The signals are loud, clear - and dangerous.

India's industrial output grew by 1.9% in September, the slowest in two years, presenting policymakers with a dilemma since the string of measures to cool prices hasn't tamed inflation but eroded growth in the broader economy, hurting employment prospects and investor sentiments.

Output in the capital goods sector was worst hit - it contracted by 6.8% - mirroring signs that costlier borrowing and rising raw material costs are prompting companies to defer capacity expansion plans.

Slower industrial growth could result in fewer job opportunities and lower salary hikes as corporations, squeezed in by lower sales, hold back investments. http://www.hindustantimes.com/images/HTPopups/121111/12_11_pg-01b.jpg

"The continuous negative growth of textiles and apparel sector for the last few months would have serious implications for employment creation in the country as the sector is the second largest employer after agriculture," Rajiv Kumar, secretary general of Federation of Indian Chambers of Commerce and Industry (Ficci), said.

"Employment growth at the top end will slow down in an economy that is still growing, simply because of cost issues," said Vikram Chhachhi, executive vice-president, DHR International, a US-based executive search firm.

The Bombay Stock Exchange benchmark Sensex on Friday fell 169 points to 17,193 on sustained concerns over sluggish corporate earnings and weak industrial growth.

The latest data will add another headache to the government and the Reserve Bank of India (RBI), which has raised interest rates 13 times in the past 19 months in the continuing tug-of-war between rising inflation and sliding growth.

Inflation, however, continues to hover around the politically-unacceptable 10% mark, while food inflation stands at 11.8%.

The RBI's strategy to raise interest rates to mop up money, slow the economy and lower inflation has worked only partially. The net effect: a slower economy and high inflation.

"The conventional policy of interest rates... now you do have to rethink on that," chief economic advisor Kaushik Basu said while referring to the increase in policy rates by the RBI.

Costlier borrowings have prompted consumers to defer purchases of goods, such as cars that are mostly bought through loans.

The result: car sales slid by 24% in the Diwali month of October, the slowest in a decade as the government peered into a worrying prospect.

Shrinking demand from Europe, which is battling sovereign debt worries has affected exports, especially for India's handicrafts, gems and jewellery, leather and textile sectors.

India's exports growth moderated to 10.8% in October and experts say could contract next month.