India's industrial output grew at its slowest pace in two years in September, providing further evidence of deceleration in the economy and raising the odds of a pause in the central bank's 20-month-long policy tightening cycle. Production at factories, mines and utilities grew 1.9 percent from a year earlier, data showed on Friday, sharply down from 3.6 percent a month earlier and below the median forecast for a 3.5 percent rise in a Reuters poll.
"Clearly, the cumulative impact of past monetary actions is getting unfolded," said A.K. Capital economist Shakti Satapathy, describing the data as "dismal". The manufacturing sector, which contributes about 80 percent to the overall index of industrial production output in Asia's third-largest economy, grew an annual 2.1 percent in September.
The drag in the index of industrial production was led by a contraction of nearly 6 percent in mining. Industrial output growth was the slowest since September 2009. "The numbers are somewhat lower than expectations, primarily due to the capital goods numbers ... But this growth is quite low and is quite likely to hit GDP growth down the line," said Saugata Bhattacharya, economist with Axis Bank in Mumbai.
A deputy governor of India's central bank, the Reserve Bank of India (RBI), said that interest rates had peaked and that the slowdown was not as sharp as suggested by the output data. Production of consumer non-durables fell an annual 1.3 percent, the data showed. Capital goods growth - a barometer of investment in the economy - contracted 7 percent, reflecting a stalling of major projects amid regulatory uncertainties and a policy paralysis that has held up major economic reforms.
Inflation remains persistently high near double-digits despite the long and aggressive monetary tightening that has taken a heavy toll on investment and consumer spending. The Reserve Bank of India (RBI) has raised interest rates 13 times since early 2010. Annual food inflation remains persistently high, with the index rising 11.81 percent in the week to October 29 compared with 12.21 percent in the previous week, data released on Friday showed.
Friday's figures come on top of data this week showing October export growth at its slowest in two years, reflecting a demand contraction in Europe, India's largest trading partner. Car sales also dropped 24 percent last month, their sharpest decline in more than a decade, as consumer demand sagged amid high borrowing costs.
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