A strong industrial revival suffered a blow on Tuesday when year-on-year factory output growth for August showed a sharp drop to 5.6 per cent from 15.2 per cent in July, triggering questions on whether the government should step in to arrest a slowdown.
Officials and experts said it could yet turn out to be only the occasional hiccup in overall annual terms, while industry raised concerns.
A drop in the output of capital goods and consumer non-durables such as food items and toiletries caused the drop.
“It is a little disappointing, let us see how it fares in annualised terms,” Finance Minister Pranab Mukherjee said.
While capital goods sector showed a contraction of 2.6 per cent in August compared with a 9.2 per cent growth in the corresponding month of the previous year, consumer non-durables registered a 1.2 per cent fall, against a positive 6.1 per cent growth a year earlier.
Economists cautioned that fitting a trend based on one month’s data would not be correct, while some suggested that inflation may have hurt demand.
Industry associations pushed for a reduction in interest rates – which have been squeezed by the Reserve Bank of India in its battle to control high inflation.
The Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry said steps must be taken to reverse the trend.
All eyes would be on the RBI which is due to announce its mid-quarterly monetary policy review next month. While data in the past few months showed inflation as a worrisome factor as industry was rebounding, the opposite could well be the case when policy-makers meet next.