Slowdown raises fears about the impact of higher interest rates and the removal of government stimulus

Indian industrial output growth nearly halved in September, data showed on Friday, in a slowdown that raised fears about the impact of higher interest rates and the removal of government stimulus.

Output from the country’s factories, mines and utilities increased by 4.4 per cent in September, sharply down from 8.2 per cent growth posted in the same month a year earlier.

In August, output increased by a revised 6.9 per cent year-on-year, a sharp decline from a 15.2 per cent surge the previous month.

Finance Minister Pranab Mukherjee told reporters the falling numbers were a matter of concern.

“It has come down for two consecutive months. We have to analyse why this is happening,” Mr Mukherjee said.

India’s industrial output had surged for much of the last 12 months, lifted by government spending and aggressive monetary easing to help shield the economy from the global economic crisis.

But since the beginning of the year, India’s central bank has raised interest rates six times to combat headline inflation that hit double figures, while the ­government has gradually withdrawn stimulus measures.

“The first month of decline could have been a statistical blip but now it has fallen two months in a row there is a niggling doubt that the figures are signalling something more permanent,” Abheek Barua, chief economist at India’s HDFC bank, told AFP.

Industrial production in Asia’s third-largest economy was well below forecasts, with economists expecting a rise of around seven per cent from a year earlier.

India’s production growth figures were far below rival China’s, which registered a 13.1 per cent year-on-year increase in October, according to figures released this week.

With the exception of Indonesia and Korea, “India had the weakest year-on-year ­industrial growth rate of any Asian country in September,” noted Credit Suisse economist Robert Prior-Wandesforde.