Index of Industrial Production (IIP) data showed a marginal deceleration from the previous month but continued to post a robust growth rate of 16.7 per cent in January. The growth was primarily led by the manufacturing sector, especially for capital goods and consumer durables.
The growth rate was 17.6 per cent, revised upwards from 16.8 per cent, for December 2009 and was at 1 per cent during the corresponding month in 2008.
The manufacturing sector grew at a robust rate of 17.9 per cent in January as against a meagre growth of 1 per cent in the corresponding month last year. Mining and electricity also registered significant growth rates of 14.6 per cent and 5.6 per cent respectively during the month under consideration, as against 1.8 per cent and 0.7 per cent in January 2009.
Finance Minister Pranab Mukherjee said the current trend in IIP is encouraging and would allow the economy to achieve a GDP growth rate of 7.2 per cent in the current financial year. Addressing the Lok Sabha later in the day, the finance minister said the annual IIP growth figure was 9.6 per cent which was close to double digits . “It shows that growth is not merely government-expenditure-driven but manufacturing is also contributing.”
He pointed out that the IIP figure had crossed “the 10 per cent barrier for the fifth consecutive month and transcended 15 per cent” for the second month. “Perhaps it indicates that the manufacturing sector is going to make a substantial contribution to growth and the economy is on the path of fast recovery…Being a conservative person, I would like to wait for another month’s figure,” Mukherjee said earlier in the day. The growth rate was in line with the expectations of most experts who had stated that even as the figures are becoming broad based, growth is still being guided by government stimulus measures.
“Industrial production decelerated slightly in January but remained at an above trend rate…production of capital goods has surged which along with rising business sentiment and loan demand points to a rebound in investment spending,” said Nikhilesh Bhattacharyya, associate economist, Moody’s economy.com.
Given a robust industrial growth rate which has been in double digits for four consecutive months and a high inflation rate, analysts expect monetary tightening measures in the fourth quarter monetary policy review on 20 April 2010.
“As the industrial growth has picked up, concerns regarding growth have been taken care of. We expect around a 25 basis point increase in policy rates (repo and reverse repo) and an increase of 25 basis points in the cash reserve ratio (CRR) in the April monetary policy review,” said Jyotinder Kaur, economist, HDFC.
Moreover, economists were apprehensive about the sustainability of the high growth rate and said that industrial growth might moderate by 7.5 -8 per cent in the next fiscal.
The growth rate of capital goods accelerated to 56.19 per cent in January from 15.9 per cent in the corresponding period last year. Production of basic and intermediate goods also registered robust growth rates of 10.7 per cent and 21.29 per cent respectively against declines of 0.7 per cent and 7.2 per cent last year. Growth rates in all the three categories in January were higher than the December figures.
Consumer durables continued to grow at a robust rate of 31.6 per cent in January as against a nominal growth of 2.1 per cent same time last year. Consumer non durables, however, fell 3.1 per cent against a growth of 4 per cent last year.