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IIP contracts, industry wants rate cut, Montek says wait for reforms to kick in

New Delhi, Nov 12 (PTI): Industrial production contracted by 0.4 per cent in September, prompting industry to seek a rate cut. Commenting on the “very disappointing” data, Planning Commission deputy chairman Montek Singh Ahluwalia was quick to point out that the numbers did not reflect the recent initiatives taken by the government to power the economy.

The growth rate of industrial output turned negative in September after showing a growth of 2.3 per cent in August. A dismal show by the manufacturing and capital goods sectors was behind the September numbers.

Ahluwalia, terming the decline as “very disappointing”, said the impact of the recent reforms initiatives would manifest in the data for the second half of the current financial year.

“…The September data does not reflect the impact of any recent initiatives… These initiatives will also take some time to have an impact,” he said.

“We have to look to the second half of the current year to see if the economy is actually going to do better. September data is obviously a bit of low point”, he said.

IIP data showed a very negative growth in capital goods reflecting investment downturn, he said, adding “investment is not something which reverses itself month to month. If investment plans have slowed down, it takes long time to pick up. You should not expect very quick reversal on monthly basis”.

The economy, Ahluwalia said, has already hit the bottom but it would take some time to know whether the turn around has begun or not.

The economic growth rate slipped to nine-year low of 6.5 per cent in 2011-12 and may fall further in the current fiscal on account of various domestic and international factors. The Reserve Bank of India had projected a growth rate of 5.8 per cent for 2012-13.

Expressing similar views, C Rangarajan, chairman of the Prime Minister's Economic Advisory Council (PMEAC) and a former governor of the RBI, said it was disappointing to see IIP slipping into negative after showing signs of improvement in August and hoped that things would improve in the coming months.

Meanwhile, the Confederation of Indian Industry (CII) stepped up its demand for a half-percentage-point cut in interest rate, saying “a complete sacrifice of growth is not in the interest of the economy”.

The RBI has refrained from cutting interest rate fearing it could fuel inflation. The central bank is scheduled to come out with its next mid-quarter policy on December 18.