After contracting twice this fiscal so far, industrial output is expected to fall again in January by 3.5 per cent due to sharp reduction in external orders and the dramatic slowdown in the domestic economy, according to Moody's.

"In January, output is likely continue to contract on a year-ago basis. A Y-o-Y decline of about 3.5 per cent is projected," Moody's economy.com economist Sherman Chan told PTI, adding that due to tumble in external orders and the dramatic slowdown of the domestic economy, the downward trend of index of industrial production is expected to continue through 2009.

Similarly, economic think-tank ICRIER director Rajiv Kumar said, "I expect industrial output in January to be in a negative territory of 2 per cent due to weak performance of auto, commercial vehicles and power sector."

The IIP data would be released on March 12 for the period of January 2009. After contracting for the first time in 15 years in October, industrial production crashed by two per cent in December despite a stimulus package announced by the government.

Crisil principal economist D K Joshi said the industrial output growth will be close to zero due to slackening demand and fall in export. Joshi said, "I expect industrial production number to be at 0.2 per cent for January."

However, Prime Minister's Economic Advisory Council chairman Suresh Tendulkar expressed hope that there would be some improvement in the IIP numbers in January.

"The steel, coal seems to be optimistic. There will be some improvement," he added.

To spur the economy, the government came out with two stimulus packages in December and January, which include excise duty reduction and various incentives across the sectors.

Since October, RBI also has infused over Rs 4,00,000 crore (Rs 4,000 billion) by reducing ratios and short-term borrowing and lending rates.

However, in spite of these measures, exports declined by 15.9 per cent in January.

Due to negative growth in manufacturing and agriculture, Indian economy grew by just 5.3 per cent, the slowest pace of any quarter in five years.