Industrial output in Nov slows to 18-mth low

New Delhi: The country's industrial output in November slowed to an 18-month low of 2.7%. A sluggish 2.3% expansion in the manufacturing sector was mainly responsible for the slump.
    The latest industrial data heaped more pressure on the government already battling high food prices, as worries about a possible industrial slowdown gathered pace and posed a dilemma for the Reserve Bank of India which is widely expected to raise interest
rates to calm rising inflation.
    Industrial production data has displayed volatility in recent months but policymakers said the November data needed to be examined in detail before drawing any conclusion. Prices of cooking oil, spices soar in city T he common man is being hit from all sides. After onions and vegetables, prices of edible oils have gone up by as much as Rs 15 a litre in Mumbai in the last two months. Spices like red chilli, turmeric , cardamom now cost a packet. P 2 IIP slump does not alarm economists
    If IIP (index of industrial production) goes down and inflation goes up, it will have an adverse impact but I am not coming to any premature conclusion," finance minister Pranab Mukherjee told reporters. "We will have to look into the corrective measures so that IIP numbers revive in the coming months."
    Planning Commission deputy chairman Montek Singh Ahluwalia, however, sought to play down concerns saying the economy was on track to grow 8.5% during 2010-11 and the low IIP numbers in November did not pose any concern.
    "I am not concerned about the low November number. There is month-to-month volatility. The cumulative industrial growth number is about 9.5%. That is very reasonable considering the overall GDP growth target we have," Ahluwalia said.
Economists said they were
not alarmed by the drastic slowdown in the November IIP number and attributed the
moderation in manufacturing activity to rising input costs and possible impact of interest rate tightening. "Am I alarmed? No, not terribly alarmed but certainly there is some concern," Shubhada Rao, chief economist at Yes Bank said.
    But she said soft patches in the data such as the decline in consumer goods and consumer non-durables need to be examined as other data show a different trend.
    Economists said despite the dramatic slowdown in November IIP, the RBI will raise interest rates by at least 25 basis points as inflation is a bigger concern than growth.
    State Bank of India chairman O P Bhatt expects the central bank to raise key interest rates by 25 basis points. Price pressures have risen in recent months and food price inflation shot up to 18.32% in the week to December 25 on the back of soaring onion, vegetable and fruit prices. RBI has raised interest rates six times in 2010 to tame inflation. Electricity and mining sectors remained buoyant in November rising 4.6% and 6% respectively from as year-ago. The capital good sector, a key gauge of industrial activity, remained buoyant growing 12.6% while consumer goods declined 3.1% in November and consumer non-durables fell 6% compared to the same year-ago period.
    Barclays Capital said the decline in the consumer durables output in November could be on the back of a reduction in festival-related buying, smaller number of working days and ongoing tightening of interest rates.
    But it expects industrial production data to remain soft in the months ahead. "On balance, while overall activity levels are expected to remain steady, we expect headline IIP growth numbers to remain soft with a high level of volatility," Barclays Capital said in a research note.