Industrial growth continued to be sluggish, improving only marginally to 3.7 per cent in January against 2.5 per cent in the previous month of the current financial year. But, this should not lead to the conclusion that industrial growth is collapsing as economists say that other pointers to the economy like exports, non-oil imports and corporate results indicate healthy industrial activities.
Some economists attribute the low numbers to the high base of last year, but others do not agree. However, all point out that industrial growth is not as bad as is shown by these numbers. In January last year, industrial growth stood at 16.8 per cent.
As such, Reserve Bank of India (RBI) is expected to hike both repo and reverse repo rates at its policy review next week to tame inflationary expectations.
Finance Minister Pranab Mukherjee expressed disappointment over industrial growth numbers. “IIP (growth) has come down and average is now 8.3 per cent in 10 months. It is better. But I am still not happy,” he told reporters.
Planning Commission Deputy Chairman Montek Singh Ahluwalia also said the numbers for January were a little higher than December, but overall slowdown for the last two-three months was a matter of concern.
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YES Bank Chief Economist Shubhada Rao, however, said, “Industrial activity is healthy. The low IIP numbers in January is due to base effect. Exports, non-oil imports will not be happening, had industrial activity not been growing.”
However, Chief Economic Advisor in the Finance Ministry Kaushik Basu would only partially agree with her. “I wish I can put it down all to base effect. But no, there is very little base effect.”
Pointing out that it is a month of slower industrial performance, he, however, said this does not mean that industry was slowing down.
It was a poor performance in January, but it was not in the nature of slowdown, he said, citing good export numbers and companies results to buttress his points. Rao also said non-oil imports, exports, Purchasing Managers’ Index (PMI) numbers did not indicate that industrial activity was growing at such a moderate rate.
The data on IIP showed that in the broad category, except for electricity generation, both manufacturing and mining performed dismally. While electricity generation grew 10.5 per cent compared to 5.6 per cent a year ago, manufacturing saw growth crashing 3.3 per cent compared to 17.9 per cent and mining just 1.6 per cent against 15.3 per cent.
Till January this financial year, industry grew 8.3 per cent against 9.5 per cent a year ago. This, however, will enable the economy to grow 8.6 per cent this financial year, as calculated by advance estimates, since industrial growth was taken to be 8.15 per cent for the entire 2010-11.
The slow manufacturing growth could be attributed to volatile capital goods whose production contracted 18.6 per cent in January against huge 57.9 per cent growth a year ago. In December also, capital goods output declined 13.7 per cent.
Even in IIP data, consumer goods category continued to be robust, growing 11.3 per cent in January against a mere 0.4 per cent a year ago.
India's exports continued to be on the uptrend and expanded by 32.4 per cent to touch $ 20.605 billion in January 2011 from $ 15.557 billion in the same month of 2010. Non-oil imports during January 2011 were estimated at $ 20.734 billion, which was 23.8 per cent higher than non-oil imports of $ 16.754 billion in January 2010.
Also, the HSBC Markit PMI, based on a survey of 500 manufacturing companies, rose to 56.8 points in January 2011 from 56.7 in December, showing expansion in manufacturing output.