It meant that overall economic growth of GDP at 7.1 per cent, projected officially for the current fiscal may also have to be revised downwards, economists said. They also saw the need for tax cuts in the interim budget on February 16 and rate cuts by the Reserve Bank to boost slowing down demand.

Industrial production, as measured by the IIP figures released today, shrank by two per cent in December against a whopping eight per cent, pulled down by a negative growth of 2.5 per cent by the overwhelming manufacturing sector. IIP had contracted for the first time in 15 years in October 2008.

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Consumer durables, consumer non-durables, intermediate goods - all showed a decline in production with the durables falling the most.

"In December, we were expecting that the situation will be unsatisfactory that is why the government has taken big stimulus steps. In January we expect it to be better," Industry Secretary Ajay Shankar said.