IIP soars to 8.2% in Oct, raises hopes of economic recovery

Industrial output growth rate bounced back to 8.2 percent in October compared to 5 percent decline in the same month last year.

Updated: Dec 13, 2012, 09:12 AM IST

New Delhi: Spurred by robust growth in manufacturing, industrial output bounced back to 16-month high of 8.2 percent in October raising hopes of economic recovery in the coming months.

"I am very encouraged by the indications of the green shoots in economy in terms of production. IIP figures are very encouraging," Finance Minister P Chidambaram told reporters while commenting on surge in Index of Industrial Production (IIP) to 8.2 percent, as against contraction of 0.7 percent in September.

The growth in the industrial production in October has been mainly on account of good performance of manufacturing, power sector and higher output of capital as well as consumer goods, suddenly revealing signs of recovery in the economy.

The manufacturing sector, which constitutes over 75 percent of the index, grew by robust 9.6 percent in October, as against a contraction of 6 percent in same month last year.

However, the output of this key sector remained low at 1 percent in the April-October period of this fiscal as against 3.8 percent growth in the same period in 2011-12.

The factory output had contracted by 5 percent in October last year.

The IIP had expanded by 9.5 percent in June 2011.

Attributing part of the increase in IIP to strong impact of the low-base effect, CII director general Chandrajit Banerjee said that RBI should start "reducing interest rates in January 2013, since India is currently maintaining the highest interest rate regime anywhere in the world."

Industrial output growth in the April-October period this fiscal, however, was 1.2 percent, less than 3.6 percent in the same period in 2011-12.

On the impact of October growth rate on GDP for the fiscal, Chidambaram said, "One swallow doesn't make a summer. There are signs of green shoots. Let us be happy about the moment. But let us see how we go forward in the next four months".

So far this fiscal, Chidambaram said, IIP had shown positive growth only in May at 2.5 percent and August at 2.3 percent.

"Let's see what the next four months bring us. Investments are taking place, capacity is being created and consumption is happening in consumer durables and non- durables," he added.

According to the Prime Minister's Economic Advisory Council Chairman C Rangarajan, the October IIP number is much higher than what was expected.

He said there was a need for industrial growth of about 8-9 percent in the second half of 2012-13 to keep the economic growth at around 6 percent this fiscal.

Capital goods output also showed remarkable improvement - up 7.5 percent in October, as against a massive contraction of 26.5 percent in October 2011.

However, output of capital goods has contracted in the April-October period by 11.4 percent, as against a dip in production by 0.5 percent in the year-ago period.

Power generation expanded by 5.5 percent in October, compared to 5.6 percent same month last year. The electricity generation in the April-October period is up 4.7 percent, as against 8.9 percent in the year-ago period.

Another segment which performed well is consumer goods as its output registered double-digit growth of 13.2 percent in October, as against a meagre 0.1 percent growth year ago.

During April-October this fiscal, growth in the consumer goods segment remained flat at 4 percent.

However, mining output in October contracted by 0.1 percent, compared to a decline in production by 5.9 percent in same month last year. The sector's production in April-October has declined by 0.7 percent, as against contraction of 2.2 percent in the year-ago period.

Overall, 17 of the 22 industry groups in manufacturing sector have shown positive growth in October, compared to the same month last year.

Consumer durables is another segment which showed smart recovery by registering a growth of 16.5 percent in October, compared to contraction of 0.4 percent a year ago.

The output of these goods registered a growth of 5.6 percent during April-October, as against 4.5 percent in the same period last fiscal.

The consumer non-durables output growth also remained in double digit at 10.1 percent in October, as against a meagre 0.5 percent growth in the same month last year. This segment grew by 2.7 percent in the seven month period of this fiscal, as against 3.6 percent during April-October, 2011-12.

The basic goods growth also improved to 4.1 percent in October, compared to 1.2 percent a year ago. During the April -October period, this segment recorded growth of 3 percent, compared to 6.3 percent in the first seven months of last fiscal.

The contraction in the industrial production during September this year was revised downward to 0.7 percent, from the provisional estimate of 0.4 percent released last month.