Giving further hopes of an economic revival, India's factory output expanded by 5 percent in February to log the best growth yet in nine months led particularly by robust performances of capital goods and consumer non-durables segments.
For the first 11 months of fiscal 2014-15, the overall growth now stands at 2.8 percent, data on index of industrial production (IIP) released by the Ministry of Statistics and Programme Implementation showed Friday.
The fresh data, which brought a sigh of relief to India Inc, comes a day after global ratings agency Moody's raised its outlook on India to positive from stable, hoping for more steps from the Narendra Modi government to push growth.
Friday's data showed that among the six use-based classifications of the index, the output of consumer durables segment continued to decline and was down 3.4 percent.
While consumer goods and basic goods performed relatively well with 5.2 percent and 5 percent growth rates, respectively, the intermediate goods segment was also struggling with an expansion of just 1.1 percent in February.
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Among the three major sector-specific indices, electricity generation was up by 5.9 percent in February, the manufacturing segment, which carries the maximum weight, by 5.2 percent, and mining by a relatively lower figure of 2.5 percent.
Cumulatively, the manufacturing sector grew by 2.2 percent in the April-February period of 2014-15, from a decline of 0.7 percent in the corresponding period of 2013-14. The mining sector grew cumulatively by 1.5 percent and electricity sector rose 9.1 percent.
"The significant uptick is encouraging and indicates a visible improvement in the business environment, said Alok B. Shriram, president of PHD Chamber. "Rebound in growth of capital goods during the recent months is indicative of a positive turn in the investments cycle."
Besides Moody's and Fitch -- which also reaffirmed its stable outlook on India, the think tank of rich nations, the Organisation for Economic Cooperation and Development (OECD), also said Thursday that India's economic expansion has continued to firm up even as growth has eased in China.
According to the Confederation of Indian Industry (CII), the figures, which are much above market expectations, point to the industrial recovery firmly taking root and an impending turnaround in the investment cycle.
"What is heartening to note is that the capital goods sector, which is a guage for investment demand, has shown an improved performance indicating that investment activity is gradually gaining traction," said Chandrajit Banerjee, director general, CII.
Banerjee pointed that going forward, the flurry of reform initiatives taken by the government, which has been duly supported by the monetary easing stance of the RBI would bring the investment momentum back to the economy.
"Many stalled projects which have been waiting for availability of credit at cost effective rates would be encouraged to restart their operations and eventually be a trigger for a turn in the investment cycle," said Banerjee added.
Other leading industry body the Federation of Indian Chambers of Commerce and Industry (FICCI) hoped that the positive sentiment and growth lead to creation of additional jobs.
"We hope to see further growth in manufacturing as a result of recent annmouncements in the budget and ceratin other measures announced by the government," said A. Didar Singh, secretary general, FICCI.
"However, it is important that to sustain this growth interest rates are brought down further for stimulating investments and demand and more steps are taken to improve our business regulatory environment," Singh added.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM), the recovery seems to have stemmed from a rebound in capital goods production, though, the slow growth of the intermediate goods indicates that the revival story is not fully complete.
"Concentrated and sustained efforts need to be targeted at reviving the electricity, intermediate and the consumer durables sector. Government needs to address the peculiar challenges faced by these segments which would then further boost the industrial growth of the economy," said Rana Kapoor, president, ASSOCHAM.
"The (Reserve Bank of India) policy must support creation of more production capacities and in ensuring adequate supply response on one hand and boost the demand growth on the other," Kapoor added.
