India's industrial output bounces back to double digits

Calcutta News.Net
Friday 10th September, 2010

A 63 percent rise in capital goods production pushed India's industrial output up to 13.8 percent in July, as against 7.1 percent in the previous month, according to official data released Friday.

The robust growth in industrial activity will strengthen the Reserve Bank of India to hike rates to tame high inflation in its six-weekly monetary policy review Sep 16.

The index of industrial production (IIP) had grown at 7.2 percent in July of 2009-10.

The double-digit growth is significant because industrial expansion in the previous month was revised downward to 5.67 percent from the earlier estimate of 7.1 percent. Experts earlier had said the industry could grow in single-digit for July because of the base effect.

The Deputy Chairman of Planning Commission, Montek Sigh Ahluwalia, said the IIP figures were better-than-expected and there is a good case for the government to increase its economic growth target for the current fiscal year.

But Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI), said: 'The industrial growth is still not broad-based. Only four sectors out of 17 -- machinery, transport equipments, metals and rubber, plastic and petroleum have contributed 72 percent of the growth for manufacturing in July.'

Though 12 out of 17 industries, which constitute the IIP, posted a positive growth in July, it was manufacturing, the one with maximum weightage, rose the highest, to 15 percent in the month under review, compared to a rise of 7.4 percent in the year-ago period, data from the ministry of statistics showed.

The manufacturing sector constitutes about 80 percent of the IIP.

The mining sector expanded at 9.7 percent, quickening its pace from the increase of 8.7 percent in July 2009, while the electricity generation grew a slower 3.7 percent in June 2010, compared to 4.2 percent in the corresponding month last year.

Among the top performing sectors was capital goods, which grew the fastest at 63 percent, 9.1 percent in intermediate goods and 5.1 percent in basic goods.

'While it is unclear whether the increased output for the capital goods is driven by investments in productive capacity formation within the economy, the trend in the data provides room for optimistic projections regarding India's long term productivity in manufacturing and infrastructure sectors,' said Shanto Ghosh, principal economist, Deloitte in India.

During the April-July period, industrial output has risen 11.4 percent, compared to a mere 4.7 percent in the first four months of the last fiscal.

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