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Rediff.com  » Business » Industrial growth at 6.8% in July

Industrial growth at 6.8% in July

Last updated on: September 11, 2009 14:31 IST

Machine partsFactory productions expanded at a greater pace for the second month in a row growing by 6.8 per cent in July against 6.4 per cent a year ago, signalling an industrial recovery.

And the trend, if sustained, could well offset the likely decline in farm output because of an erratic monsoon and help overall growth in the economy this fiscal.

Industrial growth for the first four months stood at 4.6 per cent against 5.6 per cent a year ago, after expansion in factory production is revised to 8.2 per cent in June
against 7.8 per cent estimated provisionally.

It was for the first time in June that the industry grew at such a high rate, after hit hard by the global financial crisis in the middle of September last year.

While mining grew by a whopping 9.9 per cent in July against a mere 2.8 per cent, manufacturing, which constitutes around 80 per cent in industrial production, expanded by 6.8 per cent, slightly lower than 6.9 per cent a year ago.

Electricity generation stood at 4.2 per cent in July against 4.5 per cent a year ago.

But there is no unanimity whether the high industrial growth would continue.

While Finance Secretary Ashok Chawla thinks the revival in industry would continue, many economists do not share this view as the credit offtake is not picking up and a slackening farm production would indirectly impact industry as well.

Asked whether the postive trend in industrial growth continue, Chawla told reporters, 'yes.'

But HDFC Bank Chief Economist Abheek Barua said 'clearly there is sign of slow industrial revival. However, going forward, drought will take a toll and I expect IIP between 5 and 5.5 per cent for the current fiscal. The recovery is not sustainable as there is no robust credit growth and the capital goods index is fluctuating."

Credit growth has witnessed a further 14.89 per cent drop for a fortnight ending August 14, 2009 against 15.79 per cent for the fortnight ending July 31, 2009, according to RBI.

Crisil Principal Economist D K Joshi also said,'"There is definitely an upward trend but sustaining the trend would be a challenge. The credit has yet not picked up."

Industrial growth in the month of July was quite wide ranging as just two industrial groups -- cotton textiles and jute fibre -- posted a negative growth.

Consumer durable goods production, which for long registered a negative growth, expanded by a whopping 19.8 per cent in June even on high base of 13.9 per cent a year ago.

Consumer non-durable goods production grew by five per cent against 3.4 per cent a year ago. For the first four months, this sector registered a negative growth of 2.6 per cent, showing dismal performance in earlier months.

Consumer goods category is likely to do well in the festival season.

However, capital goods, which Barua was referring to, grew by just two per cent against 17.9 per cent a year ago.

Basic goods production was up 4.8 per cent in July against 5.3 per cent a year ago.

So far as industrial groups are concerned, processed food output, which has been declining for quite some time, grew at a modest rate of 2.2 per cent in July. For the first four months of this fiscal, this category was down 13.1 per cent since output had been declining in earlier months of this fiscal.

However, output might again decline if farm production does not match up to the industry demand.

The Indian economy grew by 6.1 per cent in the first quarter of this fiscal and the growth is widely expected to decline in the second and third quarter of this fiscal.

Finance Minister Pranab Mukherjee, Planning Commission Deputy Chairman Montek Singh Ahluwalia had earlier said the growth might decline in second and third quarter due to likely impact of a deficient monsoon on farm production.

But if industrial recovery continues, views on which is not unanimous, negative impact on farm production could well be compensated, so far as overall economic growth is concerned.

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