In yet another indicator of sluggishness in the economy, industrial output fell to a

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nine-month low of 5.6 per cent in May this year compared to 8.5 per cent in the same month last year. Industrial growth in April-May 2011 stood at 5.7 per cent compared with 10.8 per cent in the corresponding period last year.

This is on the back of poor performance of key sectors like manufacturing and mining where demand has taken a hit on the back of high interest rates and commodity prices. Just a day before, passenger car sales in the country registered its slowest growth in 27 months in June this year at 1.62 per cent, after which the overall automobile sector growth for 2011-12 has been revised downward to 11-13 per cent as against earlier projections of 12-15 per cent.

As per the data released on Tuesday, manufacturing sector that accounts for over 75 per cent of the total weight of the index grew by just 5.6 per cent in May 2011 as against 8.9 per cent in May 2010. Even the mining sector grew by a meagre 1.4 per cent in May 2011 vis-à-vis 7.9 per cent in the same month last year. Finance minister Pranab Mukherjee termed the slowdown in industrial output in May as "not encouraging". He, however, was quick to add that the monthly figures should not be seen as a trend-setter.

According to Mukherjee, government is in talks with various stakeholders so that the contribution of the manufacturing sector could be increased from 16 per cent to 25 per cent in the country's overall GDP. “We are having discussion with various people, chambers of commerce and others and we are working out how to improve the manufacturing sector,” he said.

Factory output in the month of April, as measured in terms of the Index of Industrial Production (IIP), has also been revised downward to 5.7 per cent from the earlier estimate of 6.3 per cent, as per the new series with a base year of 2004-05. “Auto industry is the engine of growth for the entire manufacturing economy. So any slowdown in the sector because of high interest rates is bound to impact vertical and horizontal growth across sectors. Hence, if the trend of high interest rates and liquidity crunch continues, it will have a very negative impact on manufacturing. However, if things improve, there could be some revival around festival time," Vishnu Mathur, director general of Society of Indian Automobile Manufacturers' said.

As per the new series, capital goods production grew by just 5.9 per cent during May as compared to 15.8 per cent in May last year while growth in output of intermediate goods slowed down to 0.9 per cent vis-à-vis 11.7 per cent in May 2010. Overall, consumer goods production grew by 5.4 per cent as against 7.4 per cent in May 2010.

“Consumer sentiments has really gone down post high inflation, high interest rates and hike in fuel prices. As a result, there has been a postponement of purchases this year so far and the trend is likely to continue in the short-term because so far there are no indicators of a buoyant demand in future," Kamal Nandi, vice president of Godrej Appliances said.

Anis Chakravarty, director, Deloitte Haskins & Sells, however, feel that the industrial output has grown slower than expected in May due to capacity constraints and high input prices that in turn

have slowed down manufacturing.