At 4.1%, the August IIP figures are a tad better than July?s 3.3% but, given the base effect, they?re actually a lot worse. In August 2010, IIP had fallen to just 4.5% in comparison with July 2010?s 10%. Much of this, of course, is consistent with the overall slowing in GDP; both manufacturing and services PMI have fallen sharply over the past quarter and are now at or below the contractionary level of 50; tax collections also tell the same story. And the slowdown has been extensive, with the number of segments posting positive growth in the 22 industry groups slipping from 16 in April to 14 in May, 15 each in June and July and to just 11 in August. The sharp slowdown in industrial production when read together with the reports on the dip in new investments to a 9 quarter low, as reported by the CMIE, indicates that the monetary tightening has finally hit both production and investments.
However, the impact on higher interest rates on output has been highly skewed with some industry segments, dominated by medium and large industries, showing continued buoyancy even as production shrinks sharply in others, especially those where SMEs have a larger role. Cumulative numbers for the April-August period show that that while 7 of the 22 industry groups registered a negative growth rate during the fiscal year, growth was below 5% in 4 segments, between 5-10% in another 4 and in double digits in the remaining 6 segments. Industries where cumulative growth continue at double-digit levels include other transport equipment (17.4%), motor vehicles (15.5%), basic metals (14.9%), food products (14.6%), fabricated metals (14%) and office accounting & computing machinery (12.5%). While most of the buoyant segments are those where medium and large industries dominate, it also includes SME-dominated sectors like food products.
The slowdown has been equally harsh on both consumption and investment segments of industry. Trends for April-August show that the 4.8% growth registered in the consumer goods segment was just about half the 8.9% growth registered in the corresponding period of the previous year. In the case of investment or capital goods, growth was only 7.2% in the first 5 months of the fiscal year, which was less than half the 18.9% growth clocked in the previous year. Given that we are halfway through the year, perhaps it is time the finance ministry and RBI sat down together to take a view on all economic policies so that growth and inflation are jointly addressed.