IIP at 4.1 pc in September; RBI may not pause rate hike

Industrial output remained subdued for the second consecutive month in August, registering growth of just 4.1 per cent, but the Reserve Bank may not pause with its interest rate hike strategy, with inflation ruling much above comfort levels.

The August figure is a tad better than the 3.8 per cent growth recorded in July (revised upward from 3.3 per cent) and 4.5 per cent in the corresponding period last year.

Factory output, as measured by the Index of Industrial Production (IIP), however, stood at 5.6 per cent in the April- August period, as against 8.7 per cent in the same period last year, according to official data released on Wednesday.

In August, the manufacturing sector -- which constitutes over 75 per cent of the index -- grew by 4.5 per cent, as against 4.7 per cent in the same month last year.

However, it is unlikely that the RBI will pause with its rate hike strategy on account of the slowdown in industrial output growth. The RBI has already hiked rates 12 times since March, 2010, to control inflation, which stood at 9.8 per cent in August.

Even RBI Deputy Governor Subir Gokarn said the central bank's decision to further hike rates will depend on the inflationary situation.

The economic slowdown has impacted countries globally, especially Western nations. But India is still somewhat better off, with the country growing by 7.7 per cent in the April-June period. The government expects economic growth to be around 8.5 per cent in the current fiscal.

Even though there has been a demand slowdown in the US and Europe, India's exports maintained their growth momentum during April-September, increasing by 52.1 per cent to USD 160 billion.