Industrial growth at 10.3% year after credit crisis
Press Trust of India / New Delhi Dec 11, 2009, 15:32 IST
A year since this century's worst financial crisis choked industrial activity, India's factory production expanded by 10.3 per cent in October fuelling hopes that it would power the economy ahead.
The growth -- stupendous compared to the 0.1 per cent in the year-ago period -- however, failed to enthuse the stock market, which went into a tailspin before recovering ground.
The data comes days after the pleasantly stunning economic growth numbers. GDP grew 7.9 per cent in Q2 this fiscal, showing the country was well on the road to recovery provided farm growth does not dip much in the coming quarters.
For the first seven months of this fiscal, the Index of Industrial Production (IIP), which measures industrial growth, expanded by 7.1 per cent against 4.3 per cent a year ago.
Economists say strong industrial growth is due to base effect (low figures of last year) as well as genuine recovery.
"This is partly base-effect but the economy seems to be sort of moving up... We will have a 7 per cent growth this fiscal. Though, that is subject to the drought conditions," former chief of PM's economic panel chief Suresh Tendulkar.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said, "...To get a growth rate well above 10 per cent is not just a base effect. There is an element of growth that is taking place which I hope will be sustained."
Manufacturing, which has almost 80 per cent weight in IIP, grew by 11.1 per cent against (-)0.6 per cent a year ago helped by stimulus measures unveiled last year after the global credit crisis.
With industry well on the way to recovery, experts feel the RBI and the government can now focus on combating inflation. But, there is no consensus on whether RBI should hike interest rates for this purpose or not.
"Origin of this is in the food shortage. So, rather than RBI, the government here has to take action. RBI may take a view on interest rates, but what I understand is that policy rates are not going to be changed," Tendulkar said.
Crisil principal economist D K Joshi said the RBI could start mild tightening on rates by January.
In the context of the country facing surging food inflation, which climbed to 19.05 per cent as of November fourth week, it was heartening that processed food production expanded by 2.4 per cent against negative growth in preceding months. For the first seven months, food production contracted by 10 per cent.
It must be noted that this category does not represent unorganised food sector, but processed food items are consumed mainly by urban Indians.
Within manufacturing, consumer durables production expanded by 21 per cent in October against (-)1.6 per cent a year ago. This could partly be attributed to revival in demand due to the festive season.
Within consumer durables, auto industry reported double digit sales growth in October.
Another segment of consumer goods, non-durable consumer products, also recorded strong growth, with their production expanding by 8.1 per cent against (-)0.6 per cent a year ago.
Among other categories, intermediate goods grew by 14.3 per cent against (-)4.4 per cent a year ago.
It could safely be predicted that the industrial recovery would be sustained, as capital goods expanded by 12.2 per cent against 4.2 per cent a year ago. Basic goods could grow by 5 per cent compared to 3.2 per cent a year ago.
Industrial recovery could also be gauged from the fact that out of 17 industrial categories, only one--jute and other vegetable fibre textiles (except cotton)--recorded contraction in production in October.
The September industrial production figures were revised to 9.6 per cent from the provisional estimates of 9.1 per cent.
The government has cut excise duty by six per cent in phases, service tax by 2 per cent, besides stepping up public expenditure as part of stimulus packages to spur economic growth.
The packages, along with the RBI's soft monetary stance, are yielding results as shown by the latest set of industrial data and earlier GDP numbers. This would also heighten the debate as to when should these packages be withdrawn from, as fiscal deficit is projected to widen to 6.8 per cent growth this fiscal.
In a pre-budget meeting with Revenue Secretary P V Bhide, a delegation from industry chamber FICCI asked the Finance Ministry not to rollback stimuli unless the recovery is on a firm footing.
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