Rain damage limited: NCAER

Allaying fears of a delayed monsoon affecting industrial growth, the National Council of Applied Economic Research (NCAER) today said the relationship between agriculture and industry has weakened.

NCAER's monthly report said the share of agriculture in the gross domestic product has declined and thus, a weak monsoon was a poor indicator of India's industrial performance.

However, it is too early to worry about the impact of the monsoon, NCAER said, adding a poor or good start to the rainy season is no indicator of the monsoon's eventual performance.

The report said an early arrival was not a harbinger of good monsoon as was the case last year with the rainfall being 87 per cent of the long-period average. Likewise, in 2003, monsoon was late by a week with rains being 105 per cent.

Increase in non-farm income and penetration of financial products has weakened the link between farm income and rural expenditure on manufactured products, the report said. According to the report, the factors driving industrial growth are primarily consumption demand and exports.

The report said that an industrial growth of 8.1 per cent and manufacturing growth of 8.7 per cent in 2004-05 reflects the upsurge in industrial activity that started in 2003-04.

Along with increasing capacity utilisation, the present trend of output growth indicates a positive outlook for industry in the current year, the report said.

The think-tank said a blip in index of industrial production growth in February 2005 is surely not a sign of cyclical downturn.

The present upturn in industrial activity, which began in 2002-03, not only remained buoyant throughout 2003-04, but gathered momentum during 2004-05.

"Ongoing industrial growth, which is as much investment led as consumption spending, is fairly evenly spread within the manufacturing sector and indeed reflects optimism in the short run," NCAER said.

Though industrial growth in the short run appears to be well on track, it said sustaining it in the medium term is definitely a challenge.

The report cautioned that sustaining the growth in the medium term is a challenge as the process of reforms have to be carried on. State and local level regulations have to be relaxed for the industry to realise its full potential.

Emphasising further reforms, NCAER said though industry has been freed from regulatory controls at the central level, it is yet to be freed from undue regulatory control at state and local levels.