Industrial growth moderated to 3.6% in February, compared to 15.1% a year ago on account of a slowdown in manufacturing and mining sectors. Within manufacturing, the real culprit was capital goods, with production falling over 18% this February along with a slower pace of expansion in basic and intermediate goods. Consumption-driven sectors such as consumer goods, including automobiles and white goods, consumer goods and non-durables, however, reported a more rapid growth in February 2011 compared to the year-ago period. “Our expectation is that the next month (March) will not be a good month. So, there is one more difficult month ahead for us which is the month of March... we will see no growth in the industrial sector. But I do expect a big turnaround in the month of April,” chief economic advisor Kaushik Basu told reporters. This is the fourth straight month when growth has remained below 4%. Though economists had expected growth to remain in low single digits, the numbers released by the Central Statistics Office were lower than their projections. Economists said part of the reason for the moderation was the base effect. Even in good times, industrial growth is 9-10% but with industrial output expanding 15% in February 2010, the base effect was a huge factor, economists said. In addition, higher interest rates are affecting capacity addition decisions. Economists also said that companies were waiting to gauge if the consumption boom would last and were doing so by using every bit of capacity available with them. The moment they face an even more severe crunch, they would automatically start expanding capacity even if interest cost remained high.
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