05-13-2008, 06:02 AM
<b>Red flag goes up for RBI, March industrial output weakest in 6 yrs</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The index of industrial production (IIP) grew a meager 3 per cent in March this year, putting pressure on the Reserve Bank of India to back off from taking further monetary-tightening measures in its war against inflation.
Although economists attributed the weak industrial output in March - the lowest in six years - partly to a high base effect, they said, it did hint at a slowdown in the Indian economy. The IIP had jumped 15 per cent in March last.
Rajive Kumar, chief executive and director, ICRIER, an independent economic think-tank, did not mince words and said the low growth rates must serve as a wake-up call to policymakers, especially the RBI, that has been tightening its monetary stance since last April. "They must realise that growth is important too," he said.
The rupee, already under pressure from poor stock market sentiments and record oil prices, fell 1.2 per cent to 42.115 before closing at 42.05 to a dollar, after the government released the IIP data. The currency has plunged 2.3 per cent in just a week, the most since 1998, bringing some cheer to exporters and a cushion in times when the economy is powering down.
Not surprisingly, the consumer durables sector, that is most sensitive to interest rates, decelerated 2.1 per cent in March compared with March 2007, according to the government's use-based classification.
While the mining and electricity sectors grew 3.8 percent and 3.7 percent, respectively, manufacturing took a beating and rose just 2.9 percent in March this year. For the full year though, manufacturing output increased grew 8.6 per cent. The mining and electricity sectors grew 5 per cent and 6.4 percent, respectively in 2007-08 compared with the previous year.
Not all economists, however, expect the RBI to relent in its efforts to keep prices at bay. D K Joshi, Principal Economist, Crisil, said, "The RBI is faced with a real Catch-22 situation. But I expect further monetary tightening to follow as inflation is a bigger threat in the time of elections."
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<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The index of industrial production (IIP) grew a meager 3 per cent in March this year, putting pressure on the Reserve Bank of India to back off from taking further monetary-tightening measures in its war against inflation.
Although economists attributed the weak industrial output in March - the lowest in six years - partly to a high base effect, they said, it did hint at a slowdown in the Indian economy. The IIP had jumped 15 per cent in March last.
Rajive Kumar, chief executive and director, ICRIER, an independent economic think-tank, did not mince words and said the low growth rates must serve as a wake-up call to policymakers, especially the RBI, that has been tightening its monetary stance since last April. "They must realise that growth is important too," he said.
The rupee, already under pressure from poor stock market sentiments and record oil prices, fell 1.2 per cent to 42.115 before closing at 42.05 to a dollar, after the government released the IIP data. The currency has plunged 2.3 per cent in just a week, the most since 1998, bringing some cheer to exporters and a cushion in times when the economy is powering down.
Not surprisingly, the consumer durables sector, that is most sensitive to interest rates, decelerated 2.1 per cent in March compared with March 2007, according to the government's use-based classification.
While the mining and electricity sectors grew 3.8 percent and 3.7 percent, respectively, manufacturing took a beating and rose just 2.9 percent in March this year. For the full year though, manufacturing output increased grew 8.6 per cent. The mining and electricity sectors grew 5 per cent and 6.4 percent, respectively in 2007-08 compared with the previous year.
Not all economists, however, expect the RBI to relent in its efforts to keep prices at bay. D K Joshi, Principal Economist, Crisil, said, "The RBI is faced with a real Catch-22 situation. But I expect further monetary tightening to follow as inflation is a bigger threat in the time of elections."
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