Industry barely grows

http://www.telegraphindia.com/1111112/jsp/business/story_14740577.jsp

Industry barely grows OUR BUREAU Nov. 11: India Inc's growth has started to stutter badly — slowing to 1.9 per cent in September from a revised 3.59 per cent in August — but the babus in Delhi doggedly refuse to admit that the industrial slowdown is a direct result of the almost manic, 13 interest rate hikes since March 2010. The decline came mainly on account of manufacturing, which grew only 2.1 per cent in September compared with 6.9 per cent in the same month last year. Mining output declined 5.6 per cent in September this year against a growth of 4.3 per cent a year ago. Only electricity saw a marked improvement growing 9 per cent against 1.8 per cent a year ago. "I wouldn't draw any connection between the rate hike and the decline in industrial production," Planning Commission deputy chairman Montek Singh Ahluwalia told reporters in Delhi after the government came out with its monthly update on the index of industrial production (IIP). The fiscal and monetary authorities have consistently refused to draw a causal link between interest rate hikes and the economic slowdown. Ahluwalia believed there were other factors responsible for the industrial slowdown and argued that it would be facile to blame it all on the 375-basis-point increase in the repo rate over the past 19 months which has translated into an almost 525-basis-point increase in the call money rate at which banks borrow from the market. The call money rate now hovers at 8.57 per cent against 3.51 per cent in March 2010 when the rate hikes began. Industry, however, isn't buying Ahluwalia's argument and continues to insist that the unrelenting rate increases — an over-used monetary tool to beat down on inflation that doesn't appear to work — has scuppered industrial growth this year. "The RBI should not only pause (in the current rate hike cycle) but begin to reverse its interest rate hikes," said CII director-general Chandrajit Banerjee. Chief economic adviser Kaushik Basu also wants the RBI to have a "rethink" on its policy of monetary tightening. "The conventional policy of interest rates ... now you do have to rethink on that," Basu said. RBI deputy governor Subir Gokarn said the expected moderation in growth rates was partly because of the rate hikes.