The Indian industry saw its output shrink for the first time in 15 years with a 0.4 per cent year-on-year decline in October, as the impact of the global economic downturn deepened in the country.
From a dazzling 12.2 per cent growth in October last year, industry recorded a negative growth of 0.4 per cent in October this year, partly due to a dip of over 12 per cent in India's exports.
And if that were not bad news enough, Commerce Secretary G K Pillai has said that industrial production for November too appears to be slowing down.
Policy makers said the fall was bigger than expected even as they exuded confidence that the December 7 stimulus package would arrest any further decline. Industrial output had last fallen in April 1993.
"These figures are more disappointing than what we expected," Prime Minister's Economic Council chairman Suresh Tendulkar said.
Manufacturing, comprising around 80 per cent of the Index of Industrial Production, clocked a negative 1.2 per cent growth in the month from a whopping 13.8 per cent a year ago. In fact, output in two of the four sectors that make up the index -- intermediate goods and consumer goods -- contracted to 3.7 per cent and 2.3 per cent, respectively, from a growth of 13.9 per cent and 13.7 per cent, respectively.
Within consumer durable goods, both segments -- consumer durables and consumer non-durables -- shrank by 3per cent and 2 per cent, respectively.
Of the total 17 industries, captured in the IIP figure, as many as 10 recorded a negative growth and could have a similar bearing on economic growth, given the fact that industry accounts for 29.4 per cent of GDP.
"Something more needs to be done by RBI in terms of CRR and repo rate cut. As far as more stimulus package by the government is concerned, there is not much of scope of additional measures. Government has done enough," Prime Minister Economic Advisory Council member Govinda Rao said.
RBI, which earlier this month cut its key rates and offered refinancing facility worth Rs 11,000 crore (Rs 110 billion) to create demand, has said that it might further revise downward GDP growth forecast from the present 7.5-8 per cent.
Observers feel that more steps are needed for stimulating the economy, as even the World Bank has pegged India's growth at 6.3 per cent for 2008 and 5.8 per cent in 2009.
RBI Governor D Subbarao too has said that the next fiscal could be even more painful. The latest industrial data does not capture the stimulus package announced by the government.
Besides manufacturing, mining growth fell by 2.8 per cent, from 5.1 per cent in October, 2007. Electricity, however, proved to be a consolation with growth rate rising to 4.4 per cent from 4.2 per cent.
Of the industry segments, leather and fur products shrunk the maximum by 18.1 per cent, followed by food and wood, furniture and fixtures by 14.4 per cent and cotton textiles by 9.6 per cent.
Seven industry which registered a growth, included beverages, tobacco, paper and paper products, printing and publishing, rubber and plastics and basic metals.
For the first seven months of this fiscal, industrial growth rate more than halved to 4.1 per cent from 9.9 per cent in the corresponding period a year ago.
The slowdown follows the impact of global financial crisis which has pushed economies of developed countries like the United States, the United Kingdom, Euro zones nations and Japan into recession.
Slowdown in growth of six infrastructure industries to 3.4 per cent in October, data for which released on Thursday, showed that industrial growth too will fall, but none expected it to be negative.
The industry estimates of dip in total vehicles sale by 14.4 per cent in October also indicated towards poor show of industrial growth.
In fact, Tendulkar said the Prime Minister's economic panel is taking a relook at GDP figures, which it currently pegs at 7.7 per cent for this fiscal.
"We are taking stock of situation and we will revise our forecast accordingly," he said.
In fact, Asian Development Bank has already scaled down India's growth projection to 7 per cent for 2008 from the earlier estimate of 7.4 per cent. For 2009, the economy is likely to grow at 6.5 per cent, ADB said.
The government last Sunday came out with a stimulus package reducing across the board excise duty by 4 per cent and enhancing public expenditure by Rs 20,000 crore (Rs 200 billion) over the budgetary allocations. The banks are also working on a special package for housing and SME sector.
Given the declining inflation, which came down to an over seven month low of 8 per cent from peak of 12.91 per cent in August, RBI has more room to signal cut in interest rates.
Crisil Principal economist D K Joshi said, "I expect RBI to announce further rate cuts. There might be further stimulus from government too, but just increasing the quantum of spending will not help. Execution will also matter."