The slowdown to year-on-year growth of 7.1 percent in
June comes after eight months of double-digit expansion - a pace that was
unsustainable.
The moderation is in large part attributable to the high
levels of industrial production at the same last year when growth was
rebounding from the global recession, economists say.
Manufacturing, which has the greatest weight in the
index, grew 7.3 percent during the month. Capital goods output grew 9.7
percent, but consumer durables production remained strong, growing 27.4 percent
over last year.
The government revised down May industrial output growth
to 11.3 percent from 11.5 percent.
"Would I be worried?" said Shubhada Rao, chief
economist for Yes Bank. "Not really. Momentum is good. Global demand is
going to be soft so the support of exports may remain muted, but the focus entirely
has shifted to domestic demand. With a good monsoon, we expect rural and
overall demand to remain strong." Credit growth has been rising, advance
indicators of purchasing are positive and bank credit is improving, she said.
Strong growth this time last year - during the second
half, industrial output growth averaged 14.3 percent - is likely to keep
headline numbers muted for some months yet, she said.
She expects industrial production growth to come in at
9.0 to 9.5 percent for the fiscal year through March 2011, higher than India's
five-year average of 8.5 percent.
Economies across Asia are also facing headwinds as
governments pull back post-crisis stimulus spending while demand for exports
from Europe and the Asia remains subdued. India, however, is less reliant than
exports for growth than many other Asian economies.
The country's faster-than-expected industrial rebound was
fueled in part by government stimulus measures, which are now being unwound.
Inflation worries have pushed the central bank to hike interest rates four
times this year.
The government has raised some taxes, but it continues to
spend. Last week, the government asked Parliament to approve an additional
Rs.545.9 billion ($11.6 billion) in spending to combat a Maoist insurgency in eastern
India and to pay for the Commonwealth Games being held in New Delhi in October,
oil subsidies and other outlays.
China's industrial output in July slowed for a fifth
month to 13.4 percent over a year earlier, its lowest level this year.
