"While lower inflationary expectations and a possible consequent fall in interest rates were expected to boost the industrial growth in the second half of FY'09, the global financial crisis cast their shadow on these expectations," CMIE said in its monthly report.

The jolt of October 2008 pulled down the cumulative growth in the IIP during April-October 2008 to 4.1 per cent.

The manufacturing units slashed production levels owing to sharp slump in commodity prices, insufficient working capital finance, slowing export demand and the general uncertainty and skepticism in the business community, it said.

For the first time in the last fourteen-and-a-half years industrial output, measured in terms of the Index of Industrial Production, declined by 0.4 per cent in October 2008, CMIE said.

The manufacturing sector output dipped by 1.2 per cent as the food products, textiles, chemicals, non-metallic mineral products, transport equipment, wood and leather product sectors suffered fall in production.

The growth in industrial production slowed down in the first half of FY'09 to 4.9 per cent from 10 per cent in the same period a year ago. This slowdown came mainly on account of the spiraling inflation and the high interest rate regime followed to counter it.

"We expect the manufacturing sector to grow by 4.3 per cent, while the growth in electricity and mining and quarrying is projected to be 4.3 per cent and six per cent respectively," CMIE said.

While the high interest rates took a toll on the demand for automobiles and some consumer electronics, it also affected the sales of real estate firms. The slowdown in the housing sector had a spill over impact on the output of cement, paints and other housing-related manufactured products.

The machinery sector also reported a lower than expected growth in the first half of FY'09 because of the delays in execution of capex, CMIE said.

As per disclosures given by the companies, projects worth Rs 3 lakh crore were scheduled for commissioning in FY'09.

Of these, investments worth only Rs 80,000 crore (Rs 800 billion) got commissioned in the first half the year. Although, the machinery companies enjoyed huge order book positions, the delay in commissioning of projects restricted them from converting the orders into production and sales, it said.

Some of the industries such as fertilisers, copper, paper and sugar also witnessed a slow growth in production during April-September 2008, because of raw material shortages, CMIE said.