India's industrial sector is likely to witness a slowdown and will remain in single digit throughout this year, as the country faces various headwinds like appreciating rupee, poor infrastructure and rising borrowing costs, global credit rating agency Moody's said.

"The combination of softer domestic and decelerating external demand, particularly from the US -- India's largest export market -- is expected to weigh heavily on India's industrial sector in the coming months," Moodys Economy.com's Director of Asia Pacific Economics Ruth Stroppiana said.

Lackluster performance of manufacturing and mining, coupled with poor output of consumer goods sector, has pushed the country's industrial growth rate to 7.6 per cent in December 2007 from 13.4 per cent in the same month a year ago.

"We expect India's industrial sector to slow in 2008, as near decade high borrowing costs would weigh on demand for locally produced interest rate-sensitive goods, particularly consumer durables. The annual industrial output growth will remain in the single digit throughout most of 2008," Moodys Economy.com said in its latest report.

Meanwhile, the steady appreciation of the rupee would affect the country's export-related production, the report said. This makes Indian products less appealing in the global marketplace, it added.

In 2007, the rupee rose 12 per cent against the US dollar. Besides, Moody's said high level of government ownership, restrictions on foreign investment and poor domestic infrastructure system of the country would create roadblocks for the industrial sector.

"In recent years, all these factors have weighed on innovation and competition and the development of large-scale manufacturing plants," the report added.

A slowdown in the industrial sector can be a matter of concern as robust growth in this segment is needed to generate sufficient employment growth and accommodate the rising wave of workers moving to urban areas in search of higher paying jobs.

Economists had earlier said that the plummeting IIP figures could be the early signs of cooling of the economy. "It could be early stages of slowdown. Industrial growth is expected to further moderate in the next three months. The last quarter (of the fiscal) could be a little worse but I don't think it would be severe," HDFC Bank [Get Quote] Chief Economist Abeek Barua had said.

Besides manufacturing and mining, other segments of the industry such as electricity, basic goods and capital goods also witnessed a slowdown in growth during December 2007, IIP figures released yesterday showed.

On the slower growth, ICRIER Director Rajiv Kumar had said, "It seems the beginning of the downturn. The decline is due to rising rupee, higher interest rates, slackening in demand for consumer durables."

Risk of slowing down of economy seems to be higher than risk of managing inflation, he had said, adding that it is high time that the Reserve Bank looked at the possibility of easing its tight monetary policy.