Fiscal 2008-09 began on somber note with industrial growth in April dropping to 7 per cent compared to 11.3 per cent in the same month a year ago, reflecting the impact of higher interest rates and rising input costs.
The performance in April, however, was much better than the 3.9 per cent growth rate witnessed during March, the last month of the previous fiscal, according the Index of Industrial Production (IIP) data released on Thursday.
"We expected the IIP to be weaker as the economy is clearly slowing down. But compared to the last 3 per cent industrial growth, the 7 per cent figure gives us some reassurance that though the economic growth will slowdown but it will not be as severe as it seemed," S&P Chief Economist Subir Gokarn told PTI.
The stock markets seemed charged up after the IIP data was released with the benchmark Sensex, which was down by over 400 points in morning trade, recovered to end the day higher by over 60 points at 15,250.
Marketmen said 7 per cent growth better is than expected and it has boosted investors confidence.
Attributing the reason for slowdown to high interest rates and increasing input costs, CRISIL Principal Economist D K Joshi said the average industrial growth during 2008-09 is likely to be around 7 per cent.
While the growth in manufacturing and electricity sectors dipped in the month, mining posted a robust growth.
The growth in manufacturing declined sharply to 7.5 per cent from 12.4 per cent in the corresponding period last year.
The electricity generation also saw a steep fall to 1.4 per cent against 8.7 per cent during the same month last year.
The mining sector, however, posted an impressive show of 8.
According to Joshi, "the sectors sensitive to interest rate movement will bear the maximum brunt. We were expecting around 8.1 per cent economic growth but now we will have to revise our projections."
Meanwhile, the Reserve Bank on Wednesday hiked the short-term lending rate by 0.25 per cent to 8 per cent, which is widely expected to further strengthen interest rates.
With industrial production slowing down, he added, it was unlikely that the economy will record a growth rate of 8.1 per cent during the current fiscal.
Coupled with a soaring inflation rate that touched a 45-month high at 8.24 per cent for the week ended May 24, the industrial performance was poorest in the consumer goods sector in the use-based classification.
Consumer goods recorded a growth of 8.9 per cent against 14.7 per cent in the last year and consumer non-durables growth rate dipped to 9.8 per cent in April from 18.7 per cent during the last year.
However, much to the respite of the white good industry, consumer durable segment registered a growth of 5.5 per cent during the month versus 2.4 per cent in the corresponding month the previous year.
Intermediate goods production declined to 4.2 per cent compared to 10.6 per cent a year ago.
Capital goods, the key sector for industrial growth, however, surged to 14.2 per cent against 10.9 per cent in April 2007.
Joshi said that the best part is that the though there is a moderation in industrial activities but capital goods growth has not been hit by the slowdown, he added.
Basic goods decelerated to 4.6 per cent against 8.6 per cent in the previous year.