Is Indian industry slowing down? The latest Index of Industrial Production (IIP) estimates released by the Central Statistical Organisation (CSO) are somewhat uncomfortable. As of now, it might be an exaggeration to say that they actually confirm a slowdown. Some sectors continue to do well. Overall industrial growth for the current financial year is close to 9%. Compared with last year, however, the current year growth rates have begun looking more moderate. And the numbers for January 2008, in particular, are a little disturbing.

What?s wrong with the first month of 2008? Industrial growth rates released by CSO belong to two categories. The first is for a particular month, and the second for the length of the financial year till that month. The latest estimates for January 2008, for example, give growth rates for the month as well as for the period April-January 2007-08. For the latter, which captures industrial growth during 10 months of the current financial year, the numbers are not too bad. It?s 8.7% as against 11.2% in the corresponding 10 months of the last year.

But IIP growth for January 2008 is only 5.3%. This is not only lower, but is less than half of 11.6% in January 2007. This is what has hit headlines this time round.

Strictly speaking, January 2008 is not the worst month for industry during fiscal 2007-08. November 2007 recorded an even lower growth of 5.06%. Indeed, from September 2007 onwards, industrial growth has been pretty erratic. Given the fluctuations in the last five months, many would be inclined to hold seasonality and cyclical factors responsible for dragging down industrial growth, rather than pointing to any structural malaise. But do the numbers actually reveal something deep and different?

Manufacturing drives industrial growth by contributing almost 80% of total industrial output. The story hasn?t been any different this year. An 8.7% overall industrial growth draws largely from a 9.2% growth in manufacturing. However, the current growth in manufacturing is also a clear three percentage points lower than the 12.1% growth seen during this time last year. In January 2008, manufacturing growth has dropped to 5.9% vis-?-vis 12.1% last January. The growth story within manufacturing segments is pretty mixed. While industries like beverages & tobacco, jute, wood products, leather, chemicals and metals are growing at double digit rates, the textiles group (that is, cotton, wool & apparel), paper, and transport parts, are showing much lower growth. Textiles, of course, have been hit by the harder rupee. But what about transport parts? Do they point to the lower use and slower growth of automobiles, particularly smaller ones? Statistics on automobile sales do show that during the current year, domestic sales of automobiles are showing negative growth.

The automobile story is repeated all across consumer durables. The nascent signs of recovery seen in the growth of durables during October-December 2007 have given way to a sharp decline in January. Not only is overall growth of durables at a disappointing -1.7% during April-January 2007-08, way below 10.6% in last year, the January 2008 growth is at a marked low of -3.1%, compared with 5.35% in January 2007.

Is the slowdown in consumer durables spreading to other parts of industry as well? Digging deeper, one finds some disturbing evidence. Capital goods have been the biggest success story of India?s recent industrial march. Its current year growth of 18.3% is still as much and as big as last year?s. But January 2008 saw the sector growing by only 2.1%, which was just about a tenth of the 16.3% growth that it recorded last January.

As long as the January 2008 growth for capital goods turns out to be a deviation from the trend, it?s fine. But it?ll be worrying if it marks the beginning of a new trend underlining moderate growth in capital goods. That would imply that the deceleration in consumer durables is forcing producers to add less to capacity. The negative growth in machinery and equipment during January 2008 is another worrying sign in this regard.

If consumers start buying less and producers cut back on volumes, industrial growth is bound to fall. But when will consumers buy less? Obviously, when purchasing power falls. In recent months, rising prices and interest rates have not really boosted purchasing power. This has influenced input costs and costs of raising finance for producers as well. A harder rupee and a struggling US economy do affect the prospects of some industries. But high prices and interest rates affects all of them. Interestingly, interest rates went up in the first place for bringing down prices. But rather than reining in prices, have they actually pulled back industry? The fears are beginning to become rather dark.

The author is a visiting fellow at Icrier. These are his personal views