Sharp rebound surprises industry players; mining, capital goods continue to suffer.
Industrial production growth rebounded to 5.9 per cent in November after a sharp contraction of 4.7 per cent in the preceding month, prompting Finance Minister Pranab Mukherjee to exude confidence that industry may deliver a better performance in the months to come.
But, industry and analysts are not so sure whether the trend would last. Rating agency Crisil, for example, termed the rebound a “surprise” and said the IIP growth during the remaining months of this fiscal, though positive, would remain below five per cent.
Others said the growth could have been due to seasonal factors (mainly the Diwali holiday effect) and would be difficult to sustain. JPMorgan India economist Sajjid Z Chinoy said while the October industrial growth figures overstated weaknesses, the November numbers may have overstated strengths. (Click here for graphs & table)
The latest IIP numbers were aided by a reversal in the manufacturing downturn, particularly in the consumer goods sector, and a pick-up in electricity generation. However, mining and capital goods continued to be a drag — a fact that led the finance minister to hint at pro-active measures to address the bottlenecks.
Mining witnessed contraction for the fourth month in a row and capital goods production continued to shrink, by 4.6 per cent. The finance ministry said the policy focus would be adjusted to build on the strong industrial growth to ensure higher capital goods production and investments. “We need to build on this recovery with a stronger performance of capital goods and, therefore, investments. For that, we need to take some pro-active measures, about which I cannot comment right now,” Mukherjee said.
Economists said the Reserve Bank of India (RBI) needed to watch the headline inflation number for December. Prime Minister’s Economic Advisory Council Chairman C Rangarajan suggested the RBI concentrate on open market operations, rather than a cut in the cash reserve ratio to manage liquidity.
Moody’s Analytics senior economist Glenn Levine stuck to his forecast of the Indian economy growing six per cent in calendar year 2012. “Though economic data from India are often unreliable and sporadic, it’d be a bit of an overreaction to start throwing out the old forecasts on the basis of a single number,” he said.
However, various indicators do point to a recovery. For instance, excise duty collections, having decelerated in September and November, made the exchequer fatter by 9.7 per cent in December year-on-year.
