The numbers for the Index of Industrial Production (IIP) for July 2009 reinforce the perception that the economic recovery is gaining a firm foothold. Although the 6.8 per cent growth recorded over July 2008 was somewhat lower than in the previous month, both June and July indicate a sharp break from the sluggishness visible over previous months as the index veered from negative to marginally positive growth rates. Concerns about sustainability in the face of a weak monsoon persist. However, given the fact that July was a rather bad month as far as rainfall was concerned, the impact is apparently yet to be felt. Many forecasters expect the growth numbers to moderate a bit as the effect of the sub-normal monsoon sets in, but they support a relatively optimistic view of the economy. The most striking feature of the numbers is the fact that the manufacturing sector, which accounts for almost 80 per cent of the Index, is more or less keeping pace with the overall index. Overall, the July numbers take the year-on-year growth rates of the overall IIP and the manufacturing sector for the first four months of the financial year to 4.6 per cent and 4.3 per cent, respectively.
Within the manufacturing sector, the pattern across industrial segments is relatively uneven, as would be expected in this phase of the recovery. Twelve out of the 17 segments recorded positive growth in July, but a few did far better than the others. Key sectors like Transportation Equipment, Machinery & Equipment and Metal Products all saw growth rates of over 10 per cent, over July 2008. Non-metallic Mineral Products, largely cement, also did reasonably well at 8.3 per cent. The export-intensive Cotton Textiles and Textile Products segments continued to be sluggish, though with positive growth rates. Somewhat surprisingly, Wool and Man-made Textiles and Leather Products, both also export-intensive, did really well, turning in growth rates of about 30 per cent and 15 per cent, respectively. From the use-based perspective, the most outstanding performer was Consumer Durables, which grew 19.8 per cent, maintaining its 15 per cent-plus streak over the past two months. This is clearly driven by the Sixth Pay Commission payout, which will continue for a while as state governments and other components of the public establishment roll out their hikes.
From a policy standpoint, if this is indeed the beginning of a sustained recovery, the focus should rightly shift to exit, in line with the global pattern. For a government trying to rein in fiscal over-commitment, this will provide relief in the form of higher tax revenue. For the central bank, the broad base of the recovery across industrial segments will lessen the dilemma about raising interest rates when the time comes. Overall, while the impact of the global recession is still evident in the sluggishness of some key export sectors, domestic demand seems to be taking up the slack and not just because of government largesse.
