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India's industrial ouput grew by a robust 10.3 per cent in October against a paltry 0.1 per cent a year ago, powered by manufacturing, particularly consumer durables, which was driven by the stimulus packages.
The strong industrial production data came days after better-than-expected economic growth of 7.9 per cent in the second quarter of this fiscal, reflecting that the economy would sustain the recovery provided agriculture does not slide too much. |
For the first seven months of this fiscal, industry expanded by 7.1 per cent against 4.3 per cent a year ago.
Manufacturing, which has almost 80 per cent weight in the Index of Industrial Production, grew by 11.1 per cent against (-)0.6 per cent a year ago, when the industry faced the full impact of the world financial and economic crisis after the collapse of US financial services icon Lehman Brothers.
Within manufacturing, consumer durables production expanded by 21 per cent in October against (-)1.6 per cent a year ago.
Mining production grew by 8.2 per cent in the month against 3.2 per cent and electricity generation expanded by 4.7 per cent compared to 4.4 per cent. Industrial growth for September was revised to 9.6 per cent from provisional estimate of 9.1 per cent.
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This would also heighten the debate as to when should these packages be withdrawn from, as fiscal deficit is projected to widen to 6.8 per cent growth this fiscal.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.
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.