Industrial production growth declined in November to 5.3 per cent, against 15.8 per cent in the same month last year, the lowest since October 2006 when it stood at 4.51 per cent and the lowest in the 2007 calendar year.

The decline has been attributed to several factors: a high base effect, fewer working days owing to Diwali and the effects of high interest rates and rapid currency appreciation.

October 2007 had seen healthy industrial production growth of 12 per cent, on account of robust festive demand. With that demand petering out, industrial production growth declined in the month under review.

The decline in industrial production in November 2007 was driven by a dip in production growth of the manufacturing (which comprises 80 per cent of the index of industrial production-IIP), electricity and mining sectors.

Growth in production in the six core infrastructure industries in November dipped to 5.3 per cent, down from 9.6 per cent the same month a year ago. The core sector comprises 26.7 per cent of the index.

Commerce Minister Kamal Nath said: "I do not see this as a sign of a slowdown, but as a signal to re-look at consumer spending and loosening a little bit on interest rates. On the other hand, we also have to guard against inflation. It is a tight-rope walk."

"This is a weak rate of growth. RBI's tight monetary policy is manifesting in low industrial production growth numbers," said Shubhada Rao, chief economist, Yes Bank [Get Quote]. Rao had forecast a higher, around seven per cent IIP growth for the month.

Economists expect a mild recovery in industrial production in December 2007.

"The December data are likely to show a recovery from the current levels, though the overall trend in industrial production growth would be for moderation, compared to the trend last year," said Rajeev Malik, senior economist, JPMorgan Chase Bank.

JPMorgan had pegged November industrial growth at 5.6 per cent.

Though consumer demand has taken a hit due to high interest rates, investment demand continues to be strong, as indicated by 11.2 per cent growth in the machinery and equipment sector and 24.5 per cent growth in capital goods production over 29.4 per cent a year ago.

Consumer durables production dipped 4.1 per cent in November against 10.1 per cent growth a year ago. Consumer non-durables production also dipped 2.1 per cent from a growth rate of 14.8 per cent in the same month of the previous year.

Goldman Sachs Asia Economic Research Group also expects a bounce-back in December, but said trend IP growth will moderate in 2008.

It does not expect a rate change in the near term. "We expect the central bank will keep interest rates on hold in its January 29 meeting. In FY09 we expect the RBI to start lowering interest rates," the research group said.

High Hopes: What economists forecast

• IIP to grow 7 to 9 per cent by the end of fiscal 2007-08; recovery in December
• Manufacturing growth in the range of 9 to10 per cent by the end of fiscal 2007-08
• RBI may cut interest rates in its April review of the monetary policy, boosting consumer demand.
• Investment demand to remain strong.