Fears of a deeper economic slowdown grew stronger with the government reporting on Friday that industrial growth plunged to 1.3 per cent in August from a robust 10.9 per cent in the same month last year.
The plunge underscored the impact of rising interest rates and slackening demand, which has cascaded through almost all sectors of the economy.
Industrial output was pulled down heavily by a lacklustre growth of mere 1.1 per cent in the manufacturing sector and 0.8 per cent in electricity generation.
Industrial growth during the first five months of the current fiscal stood at 4.9 per cent, down from last year’s 10 per cent amidst rising worries about fall in the broader economy’s growth.
Finance Minister P Chidambaram said, “the IIP numbers are not very satisfactory and at the same time they are not very reliable,” he said.
The high interest rates, subdued demand conditions in domestic as well as international markets were expected to drag down the growth in the industrial production, but the magnitude of the fall has come as a surprise to many analysts.
“We, therefore, do not expect interest rates to soften in the short term, current tight liquidity conditions notwithstanding. Hence, demand conditions are likely to remain muted,” said Yashika Singh, head of economic analysis at consulting firm Dun and Bradstreet.