Oil refineries and coal mines produced less in September than they did a year ago, nearly halving core industrial growth to a measly 2.5%. Although cement factories and power plants produced more, their rates of growth were far behind the figures of the previous year.
Overall, output in six 'infrastructure' industries, which weigh in at a quarter of the index of India's industrial output, reinforces the impression that manufacturing is headed for a slowdown. The country's energy, steel and cement production for the six months till September grew by a shade lower than in the first half of 2009-10. Since April, India's factory output has grown upwards of 10% a month on the average, with twin peaks in April and July at above 15%.
But August and June saw big dips when the growth rate slipped to under 6%. The September numbers rub the fact in that our industrial core is cooling.
Sales of consumer goods are following a secular, if decelerating, trend while the footloose capital goods index is creating the headline flutter. The lumpy numbers are due to bunched up plans by companies to expand capacity. Consumption demand—and, as a corollary, orders for plant and machinery — appears to be moderating. The festival season could prop up sales of flat screen television sets and mobile phones, aided by a good monsoon crop.
However, once the effects of a low base of the first six months in 2009-10 wear off, it will be difficult for India to notch up manufacturing growth rates in excess of 15% the international investor has come to expect. That said, India remains the second fastest growing major economy in the world and the International Monetary Fund may not to be too far off the mark when it forecast, earlier this month, GDP growth of 9.7% for 2010. The IMF, though, has captured the eventual cooling down, it estimates the Indian economy will grow by 8.4% in 2011. To stay on this trajectory, India's infrastructure spending would need to double to $1 trillion during the next five-year plan.
The man who will be watching industrial data most keenly, Reserve Bank of India Governor Duvviri Subbarao, must make a call whether the inflation that emerged early in our recovery cycle is choking growth. Mr Subbarao has raised interest rates five times since January to tame runaway prices. Factory output data ought tell him if he has done enough. The market expects he may raise rates again just before Diwali because food prices are not coming down fast enough and the central bank has been on the ball about inflation spreading to manufacturing. But here's the rub: the numbers are so jumpy that Mr Subbarao confesses he doesn't know what to make of them!