Industrial output exceeds expectations, up 7% in July

The government today announced that industry output, as measured by the index of industrial production (IIP), grew 7 per cent in July, the same as the corresponding period in 2008, taking analysts by surprise as much for the magnitude of the growth as the early data release.

The announcement was made by Commerce and Industry Minister Anand Sharma while announcing the new foreign trade policy and was unexpected because the July IIP numbers were scheduled only in the second week of September.

Analysts were also expecting a sharp fall in IIP for July, given the meagre 1.8 per cent growth in the core sector, which accounts for 27 per cent of IIP, data for which was released yesterday. Although the IIP grew a steep 7.8 per cent in June, the figure was considered an aberration.

July's 7 per cent growth indicates that the decline in factory production has been arrested and adds to hopes of economic recovery.

Sharma attributed the 7 per cent growth to fiscal and monetary measures by the government and the Reserve Bank of India. “These measures have had a salutary effect on our economy,” he said.

The growth in IIP is estimated to have come from the double-digit growth in two-wheeler and car segments and consumer goods production. "While industry data for July is buoyant, with two-wheelers up 18.2 per cent, cars up 29.1 per cent, commercial vehicle up 5.1 per cent, we expect the July IIP to come lower at 5 per cent levels versus the surprisingly high 7.8 per cent reading in June," said Rohini Malkani, economist, Citi India, in a report yesterday.

The growth in output of consumer non-durables comprising items like cars and appliances was flat in June, even as the quarter production decline d 4.6 per cent. Overall consumer goods production rose 3.8 per cent in June, aided by a 15.5 per cent expansion in consumer durables output. Segregated figures for July were not available.