Despite low private consumption, factory output at 10.4 per cent in August registered the highest growth rate in 22 months. It was up from a revised figure of 7.2 per cent (previously reported as 6.8 per cent) for July, accelerating expectations of higher growth numbers in the coming months. The factory output as measured by the index of industrial production (IIP) had been 1.7 per cent during the corresponding period in 2008 which led some analysts to say that the increase this time was due to the high base effect.
Analysts, however, also supported the official claim that the impressive IIP figures were due to the trickledown effect of the government stimulus packages though the strength of the private sector demand remained uncertain.
"The good IIP numbers are a result of stimulus packages. These numbers were anticipated," said secretary, department of industry policy and promotion, Ajay Shankar.
Finance minister Pranab Mukherjee termed it as a good sign of recovery. "We are hoping that when the final figure of second quarter will be available, perhaps there will be some higher growth. If the higher growth projection is there, then in the third quarter, fourth quarter we can make up," he said.
Expressing a possibility of industrial production moving up further, finance secretary Ashok Chawla said, "We expect the trend to continue and expect better numbers in September."
Analysts expect the industrial growth rate to accelerate in the coming months. “Purchasing manager’s index indicates new orders and rise in production. An inventory adjustment effect will also boost production activity, with many firms having run down stocks earlier this year in anticipation of a prolonged downturn that looks increasingly unlikely for many sectors,” said Nikhilesh Bhattacharyya, associate economist with Moody’s economy.com.
Leading the growth numbers was the mining sector that rose 12.9 per cent as compared to just 2.8 per cent in August 2008. Maintaining the trend of strong growth registered in the previous month of July, manufacturing output registered a growth of 10.2 per cent in August as against 1.7 per cent in the year ago period. Electricity output also grew by 10.6 per cent as against 0.8 per cent in the corresponding month under consideration in 2008. In aggregare terms, industrial growth stood at 5.8 per cent as against 4.3 per cent in April-August year ago.
According to Bhattacharyya, “The strength of private sector demand remains somewhat uncertain with weak expansion in production of consumer non durables which is the area likely to have received the least assistance from government spending and price control measures.”
DK Joshi, principal economist with Crisil India, attributed the suspicions about growth sustainability to the lack of strong credit offtake. “However, I expect private consumption to bounce back by 2010-11 fuelled by rising incomes and improved global scenario. Interest rates unlikely to shoot up and will continue to support growth for the coming months,” he added.
Industry is also optimistic about the coming months and expects the central bank to continue with the accommodative monetary policy to aid the economy to a firm revival.
“It is important to nurture this economic recovery by continuing with the current fiscal and monetary space which has been given to industry to recover, especially during a year of poor monsoons which could impact agricultural growth. CII hopes that the RBI would give the welcome signal of an accommodative monetary policy when the half yearly review is done,” said Chandrajit Banerjee, director general,CII.
Ficci president Harsh Pati Sighania also maintained that it was critical that the overall policy parameters and stimulus measures were not reversed at this point of time.
Of 17 industry groups in the index, 14 showed positive growth.
Use based categories like basic goods grew by 10 per cent as against 3.9 per cent in the corresponding period last year. Capital and consumer goods also registered impressive growth of 8.3 per cent and 8.5 per cent respectively as against 0.9 per cent and 6.4 per cent in August 2008. Intermediate goods which had registered a decline of 5.5 per cent in the month under consideration last year grew by 14.3 per cent during the month this year.
Consumer durables also posted a 22.3 per cent growth rate as against 3.9 per cent on a year on year basis. Only consumer non durables registered a marginal decline in growth rate to 3.7 per cent during the month as against 7.3 per cent last year. The growth in consumer non durables is also lower than the 5.7 per cent growth registered in the previous month of July.
