Industrial growth slows in India

High interest rates have hit rate sensitive consumer goods

India's industrial growth slowed sharply in September due to higher interest rates and a stronger rupee.

Factory output grew 6.4% compared with 12% a year earlier and 10.7% in August.

Experts fear five interest rate rises from mid-2006 to March, and a more than 12% increase in the value of the rupee this year are now hurting the economy.

"If the October numbers come out similar to September, that will be a cause for serious concern," said economist DK Joshi at Crisil in Mumbai.

The industrial growth numbers are provisional and are often revised significantly.

Growth hopes

About 83% of the economy is going to grow between 9% and 10% Palaniappan Chidambaram, India's Financial Minister

Sonal Varma, economist at Lehman Brothers, said that capital goods output, such are machinery and tools, remains buoyant despite tight monetary policy influencing interest rate sensitive consumer goods.

India's Finance Minister Palaniappan Chidambaram thinks that "both industry and services could record growth rates close to 10%" this year.

"That means about 83% of the economy is going to grow between 9% and 10%," he said.

India is now the second fastest growing major economy in the world after China.

Industrial production contributes about a fifth of India's economic expansion.