Search the Internet          Tips  Sites: Finance, Investment

India's growth slips, but monsoons hold key

A key Indian economic indicator showed on Friday that growth in six major industrial sectors shrank by 0.5 per cent in May after rising 8 per cent in the same month last year -- another sign of the slowdown gripping the economy.

Economists said any turnaround would hinge on a good monsoon, vital to India's mainly agricultural economy.

Analysts said the figures, spanning the core sectors of electricity, coal, steel, petroleum, refining and cement, boded ill for industrial production data.

Generating 4,3125 million units, the electricity sector grew at 2.8 per cent in May, 2001, but the growth was lower than the 6.5 per cent growth registered in May, 2000.

The coal sector posted a growth rate of 0.4 per cent as against 12.9 per cent last year, the figures revealed.

"The May data just shows the continuation of the downward trend in the economy as the infrastructure represents the core industries," said an economist with a Bombay-based research firm.

"An upside can only come from giving demand a push and for that we are pinning our hopes of a good, well spread out monsoon which will boost demand in the rural sector," the economist said.

The infrastructure industries index released by the commerce and industry ministry showed the petroleum refinery products sector was hardest hit last month.

Its growth rate slowed by 4.1 per cent in May compared with a 32.4 per cent rise in the same month last year. Crude petroleum growth fell by 6.8 per cent compared with a 3.5 per cent drop a year earlier.

The cement sector was also down by 1.7 per cent compared with an increase of 4.6 per cent last year.

"The slowdown continues. There's no major change in the situation," said an economist at a Bombay-based research house.

"Since it (infrastructure) comprises around 27 per cent of the index of industrial production, we can expect those numbers to be bad as well."

The figures came on the back of a raft of earlier numbers that suggested that India's economy, one of the world's fastest growing, was losing pace due to poor consumption and investment demand and high energy prices.

India's industrial output growth in April slumped to 2.7 per cent from 6.5 per cent in the same month a year earlier.

Analysts say sluggish domestic demand and a slowing global economy coupled with expected slower exports and lack of spending on infrastructure have taken a toll on industrial output growth.

The government is now desperately counting on good monsoon rains to boost demand in rural areas where two-thirds of India's one billion population lives. Normal monsoon rains are crucial for a bumper harvest which boosts rural incomes and stimulates consumption.

With additional inputs from PTI

Tell us what you think of this report