Is India's industrial growth losing steam?

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Bikky Khosla | 16 Nov, 2010
While exports during October registered a growth of 21.3 percent at $18 billion, my main concern is the country's import growth which has plummeted to 6.8 percent and industrial growth which appears to be losing steam falling to 4.4 percent compared to 8.2 percent a year ago.

It's good to see that for the period April-October exports touched $121.4 billion, registering a growth of 26.8 percent. Having said that, we need to keep up with this momentum considering the fragile market condition. Barring a few sectors, a marked improvement that is being seen in the export scenario is mainly owing to diversification of export markets.

While the export figures indicated an improving external environment, the import figures come as an indication that the country's domestic economy was slowing down. Although still not an alarming situation, the weakening of industrial growth is also a matter of concern nevertheless. The country's industrial growth continued to decelerate for two consecutive months, slowing to a 16-month low.

The fact that machinery used to manufacture other goods, or in short, capital goods' output showing a decline by 4.2 percent in September implies that Indian businesses are not investing enough because they don't expect demand to be strong.

I believe that the current situation will make policy-making even tougher for the Reserve Bank of India - to strike a balance between spurring growth and reining in inflation. I will not be surprised if RBI halts further rate increases at least till March 2011.