We are in an industrial recession: NIPFP

The August Index of Industrial Production (IIP) numbers came in at 1.3% versus 10.9% year-on-year (YoY). Manufacturing growth for August stood at 1.1% versus 10.7% YoY, and the consumer durables growth for the period has come in at 5.1% against 6.2%.

Rao, however, feels that a 7% Gross Domestic Product (GDP) growth rate is still within reach, "for the next year though, we are going to have a much more serious problem," he said.

Here is a verbatim transcript of the exclusive interview with M Govinda Rao on CNBC-TV18. Also watch the accompanying video.

Q: The August Index of Industrial Production (IIP) has come in at 1.3%. Do you think all bets are off on the 7.5% growth that we have been talking about - should we look at a much more realistic number, say, below 7%?

A: This is a significant deceleration. We all had a fear that there would be an industrial recession and maybe we will have to revise the growth forecast now that there is a global financial crisis and a serious liquidity crunch in the Indian situation.

Q: Industrial recession is the word you have used. Would you stick with that word the next time you are going to find a contracting number?

A: Yes. We are in an industrial recession.

Q: What will be the official position of the Economic Advisory Council (EAC)? Will you all - in your next meeting - actually use the world recession and what would your numbers be?

A: I cannot say what the official position of the EAC is.

Q: The industrial growth and the Gross Domestic Product (GDP) number would now look very different from that 7.5%. Is it just sub-7%, is it sub-6%?

A: Let us not forget that it was the EAC, which actually came out with less than 8% (GDP growth rate). We were the ones who brought down the growth rate below the 8% level.

Q: So as an economist even if I don't take the council, what is your sense - are we talking sub-7% or are we talking sub-6% at this juncture?

A: We will need to reduce the growth forecast but even with the service sector and all the attendant problems, I would still think that around 7% growth should be possible to reach. For the next year though, we are going to have a much more serious problem.