High interest rates take toll on growth

NEW DELHI, INDIA: Industrial growth almost halved to 5.2 per cent in the first quarter of this fiscal from 10.3 per cent a year ago, as rising interest rates continued to drag down manufacturing.

Inferring from the Q1 data of industrial growth, as measured by the Index of Industrial Production, economists believe that economic growth this fiscal would moderate at below 8 per cent level against 9.1 per cent in 2007-08.

Abheek Barua, chief economist, HDFC, said: "Economic growth is likely to be 7.7 per cent this fiscal. It is unlikely to be more than this, though it may fall below."

Subir Gokaran, chief economist -  Asia Pacific, Standard and Poor, said that the rating agency's forecast of 7.8 per cent GDP growth for this year takes into account the pattern in the industry and the industrial slowdown is not surprising.

In the month of June, industrial growth slowed down to 5.4 per cent from 8.9 per cent a year ago as manufacturing growth decelerated to 5.9 per cent from 9.7 per cent and electricity generation to 5.4 per cent from 8.9 per cent.

"Interest rates have moved up and there has been a slowdown in exports to US, rest of Asia and cost of fuel has increased, slowing down the manufacturing sector," Barua said.

Consumer durables sector, which was a cause of concern for the government till recently, however, revived growing by 3.5 per cent in June against a fall of 3.6 per cent a year ago.

However, economists could not explain the revival. "This phenomenon is puzzling. Retail credit has slowed down. There is huge anomaly," Barua said.

Source: PTI