New Delhi: On account of a poor showing by the manufacturing and mining sectors, the country's industrial growth rate shrunk by more than half to 6.3 per cent during April, which the government described as ‘disturbing’.

The declining factory output may increase pressure on the Reserve Bank of India (RBI) to have a relook at the tight monetary policy -- which it had been pursuing since March, 2010, to check rising prices -- at a mid-quarterly review next week.

Apparently worried over the performance of the manufacturing sector, the government yesterday accorded in-principle approval to a new manufacturing policy that allows flexible labour deployment.

The Index of Industrial Production (IIP), according to the new series (with 2004-05 base year) released by the government on Friday, declined to 6.3 per cent in April from 13.1
per cent in the corresponding period last fiscal.

As per the old data series (with base year 1993-94), the decline was much steeper, with the IIP nosediving to 4.4 per cent in April from 16.6 per cent in the year ago period.

Concerned over the falling industrial growth rate, Finance Minister Pranab Mukherjee said, "The IIP growth figures are disturbing. (We) need to wait for longer term IIP growth to see the trend."

The slowdown has mainly been on account of poor performance by the manufacturing and mining sectors.

"The degree of slowdown in growth would have implications on RBI's rate increase plans. Though currently the bias is to control inflation, there would be a close watch on growth
numbers as well, since the tightening over the last 12 months will start showing impact," Kotak Mahindra Old Mutual Life Insurance chief investment officer Sudhakar Shanbhag said.

As per the new data, IIP growth in 2010-11 has been pegged at 8.2 per cent. The IIP had grown by 7.8 per cent in the last fiscal, as per the old series.

Commenting on the new index, the country's Chief Statistician T C A Anant said the new series reflects the industrial situation much better.

"The new index reflects the manufacturing sector in a much better way. The National Statistical Commission had recommended that a new index should be made every five years, and so the process was long overdue," he said.

The latest slide in monthly numbers came after the IIP registered a growth of only 7.8 per cent in March, revised upward from the original estimate of 7.3 per cent, as against 15.5 per cent in March, 2010.

Experts had blamed the RBI's rate hikes, leading to lowering of investments and a fall in output, for the slowdown in IIP growth. Some experts said the slowdown may force the
RBI to have a relook at its monetary tightening policy.

However, many others said the prevailing high inflation situation would force the RBI to continue with the rate hikes.
"While growth is decelerating, growth is still reasonably strong and inflation remains unacceptably high, therefore we do not expect the RBI's stance on monetary policy to change significantly," India Infoline economist Ashutosh Datar said.