IIP rebounds on festive demand

Govt hopes to close out the fiscal at near 10%.

Industrial growth started the third quarter of the current year on a robust note by bouncing back into double digits at 10.76 per cent in October. The rebound is primarily on the back of an increase in manufacturing, particularly of consumer durables, thanks to increased demand during the festival season.

Industrial output, measured by the index of industrial production (IIP), had moderated to single digits at 6.92 per cent in August and further decelerated to 4.4 per cent in September. It had registered a growth of 10.1 per cent in October 2009.

The growth was marginally higher than analysts’ expectations. The government has exuded confidence that average industrial output will close out the financial year at around 10 per cent. “I hope that (IIP growth) would be close to 10 per cent, but it may not actually get to 10 per cent,” said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

However, Ahluwalia was cautious about the remaining months of the year. “There could be a base-level effect. So, the growth rate could be lower than the same months last year,” he added.(Click for graph)

Finance Minister Pranab Mukherjee was more confident. “I hope this trend will continue and double-digit growth in industry will be possible. The trend is encouraging: All the three important sectors — industry, agriculture and services — are evenly growing, which is a healthy sign,” Mukherjee said.

Chief Statistician of India T C A Anant also said robust industrial growth would be sustained. “I had earlier said that with farm income rising due to the harvest season, demand is going to go up, aiding production. So, it is on expected lines. The only point of concern is very low growth or no growth in the consumer non-durable sector, which has implications for the agro industry,“said Anant.

Manufacturing grew at the highest rate among sectors at 11.3 per cent in October, compared with 10.8 per cent last year. Mining and electricity production grew at 6.5 per cent and 8.8 per cent, respectively, compared with 9.1 per cent and 4 per cent.

Chief Economic Adviser to the Finance Ministry Kaushik Basu said manufacturing growth is “encouraging“. But he cautioned that the industrial growth in November would be lower than October “purely due to the high base-effect of last year”.

Basic and intermediate goods grew at 7.7 per cent and 9.5 per cent, respectively, compared with 4 per cent and 15.4 per cent. Capital goods, which have been one of the most volatile components of IIP, grew at a robust 22 per cent in October after registering a contraction of 4.1 per cent in the previous month.

“The volatility in capital goods is a result of the inconsistent flow of data for one or two components, cable wires being one of them,” said an official in the statistics ministry requesting anonymity.

However, the Central Statistical Organisation has this time highlighted key segments within capital goods that registered strong growth: offshore platforms (76.4 per cent), shipbuilding (75.2 per cent), control panels (57.8 per cent) and electric generators (54 per cent). The growth in consumer durables was led by scooters (77.5 per cent), motor cycles (44 per cent), television sets (33 per cent) and passenger cars (31 per cent).

Consumer goods grew at 9.6 per cent, a significant increase from the previous month, when growth stood at 4.7 per cent. Consumer durables grew at 30.9 per cent, up from 10.9 per cent in the previous month and 18.3 per cent in the corresponding month of 2009. Consumer non-durables, however, continued to grow at a meagre 0.1 per cent, compared with 8.6 per cent in the same month last year and 1.93 per cent in September this year.

“Our sense is in the second half, IIP will moderate to around 7-7.5 per cent by March. Overall, the IIP figures are very volatile; we had expected it at around 8 per cent. It is difficult to draw trends from this data, but demand is very strong and investment in infrastructure-related sectors is fairly strong,” said DK Joshi, chief economist with research and ratings agency Crisil.

Joshi said that a rise in interest rates might also have a moderating impact.