Industrial growth slowed to 3.7% in January, 2011, compared to 16.8% expansion in the year-ago period, dragged down by the poor performance of the manufacturing sector, particularly capital goods.
However, growth in factory output in January, as measured in terms of the Index of Industrial Production (IIP), was better than the 2.53% expansion (revised upward from 1.6%) witnessed in the previous month.
Industrial output growth during the April-January period this fiscal stood at 8.3% vis-a-vis the corresponding period of the previous year. In contrast, industrial output expanded by 9.5% year-on-year in April-January, 2009-10, official data released here today shows.
In January, manufacturing growth plummeted to 3.3% from 17.9% a year ago.
The capital goods sector contracted by 18.6% in the month under review. The sector had posted a robust growth of 57.9% in January, 2010.
However, production in the consumer non-durables segment grew by 6.9% during the month under review. It had contracted by 7% in the same period a year ago.
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Mining growth also plummeted to 1.6% in the month under review from 15.3% in the comparable month of 2010. Electricity generation output rose by 10.5% in January, compared to 5.6% growth in the same month last year.
On the whole, 14 out of 17 industry groups achieved positive growth in the first month of 2011.
EXPERT VIEW:
SEAN CALLOW, SENIOR CURRENCY STRATEGIST, WESTPAC INSTITUTIONAL BANK, SYDNEY:
"The subdued growth in India's industrial sector is only about half the average growth rate of the past decade and certainly won't inspire renewed confidence in the rupee.
"It is not an overly worrying reading in itself, but we maintain an underperform rating on the rupee versus other Asian currencies due to India's heightened vulnerabililty to elevated crude oil prices and shaky global risk appetite crimping foreign demand for Sensex stocks."
NAMRATA PADHYE, ECONOMIST, IDBI GILTS, MUMBAI:
"This month's growth has been supported by continued buoyancy in the electricity segment. Manufacturing growth too has come in line with expectations or even slightly better than what was expected.
"On the monetary policy front, we expect another 25 basis points hike in policy rates at the upcoming mid-quarter review."
MARKET REACTION:
- The partially convertible rupee was little changed at 45.18/19 per dollar after the factory data.
- The most-traded 8.13% 2022 bond rose 1 basis point to 8.05%, after the data.
- The benchmark five-year swap rate rose 1-½ basis points to 7.8950%, traders said.
- The 30-share BSE index was little changed post the data and continued to seesaw.
BACKGROUND
- India's domestically driven economy, which slowed down to 8.2% in the third quarter of FY11 ending March, is expected to grow at 8.6% in the current fiscal.
- The industrial output, which grew at 8.3% during April-January, is projected to grow at 8.1% in FY11 by the Indian government.
- The HSBC Markit Purchasing Managers' Index , an indicator of manufacturing expansion, edged up to a three-month high of 57.9 in February from 56.8 in January, the 23rd straight month it has been above 50 that divides growth from contraction.
- Finance Minister Pranab Mukherjee, while presenting the Union Budget on February 28, said the economy was estimated to grow around 9% in the next fiscal year.
- India's exports , which contribute to around 20% of GDP, rose an annual 32.4% in January to $20.6 billion, while imports climbed 13.1% to $28.6 billion.
- The RBI has raised key lending and borrowing rates seven times since last March to stem inflationary expectations, and is expected to raise rates by another 25 basis points when it meets for the mid-quarter policy review on March 17.
- Trade and Industry Minister Anand Sharma said on Tuesday that India would soon announce a new manufacturing policy, aimed at raising the share of manufacturing in growth from 16% to around 25% in coming years.