Industrial production fell 2 per cent year-on-year in December, the government said on Thursday – but could take solace because the benchmark inflation rate also dipped to 4.39 per cent in a significant drop. Lower inflation could aid cheaper interest rates for credit-starved industry.
The contraction in December slowed industrial growth between April and December — the first nine months of the current fiscal year — to 3.2 per cent from 9 per cent from a year earlier.
Consumer durables, consumer non-durables, intermediate goods -- all showed a decline in production with the durables falling the most.
"In December, we were expecting that the situation will be unsatisfactory that is why the government has taken big stimulus steps. In January we expect it to be better," Industry Secretary Ajay Shankar said. The government has offered both tax breaks and increased spending.
The fall in industrial output was also because of a “base effect”—a statistical phenomenon that shows slowing down of growth because of a very high growth rate in the corresponding period the previous year. Industrial output grew by 8 per cent in December 2007.
“Industrial activity will likely improve slightly over the course of the current quarter as a combination of improving local liquidity conditions, lower interest rates, and the government's fiscal measures,” said Rajeev Malik of Macquarie Securities.
The fall in industrial production dampened the cheer arising out of the fall in the price line. Wholesale prices based inflation rate fell to 4.39 percent from 5.07 percent for the week before primarily due to a 3.1 percent decline in the index for fuels.
“Commodity group-wise examination shows that the decrease in overall inflation in the current week has resulted from the reduction in prices of petro products,” a finance ministry statement said.