New Delhi: A year since this century's worst
financial crisis choked industrial activity, India's factory
production expanded by 10.3 percent in October fuelling hopes
that it would power the economy ahead.
The growth -- stupendous compared to the 0.1 percent in
the year-ago period -- however, failed to enthuse the stock
market which went into a tailspin before recovering ground.
The data comes days after the pleasantly stunning economic
growth numbers. GDP grew 7.9 percent in Q2 this fiscal,
showing the country was well on the road to recovery provided
farm growth does not dip much in the coming quarters.
For the first seven months of this fiscal, the Index of
Industrial Production (IIP), which measures industrial growth,
expanded by 7.1 percent against 4.3 percent a year ago.
Economists say strong industrial growth is due to base
effect (low figures of last year) as well as genuine recovery.
"This is partly base-effect but the economy seems to be
sort of moving up... we will have a 7 percent growth this
fiscal. Though, that is subject to the drought conditions,"
former chief of PM's economic panel chief Suresh Tendulkar.
Planning Commission Deputy Chairman Montek Singh
Ahluwalia said, "...to get a growth rate well above 10 percent is not just a base effect. There is an element of growth that is taking place which I hope will be sustained."
Manufacturing, which has almost 80 percent weight in
IIP, grew by 11.1 percent against (-)0.6 percent a year ago
helped by stimulus measures unveiled last year after the
global credit crisis.
With industry well on the way to recovery, experts feel
the RBI and the government can now focus on combating
inflation. But, there is no consensus on whether RBI should
hike interest rates for this purpose or not.
"Origin of this is in the food shortage. So, rather than
RBI, the government here has to take action. RBI may take a
view on interest rates, but what I understand is that policy
rates are not going to be changed," Tendulkar said.
Crisil principal economist DK Joshi said the RBI could
start mild tightening on rates by January.
In the context of the country facing surging food
inflation, which climbed to 19.05 percent as of November
fourth week, it was heartening that processed food production
expanded by 2.4 percent against negative growth in preceding
months. For the first seven months, food production contracted
by 10 percent.
It must be noted that this category does not represent
unorganised food sector, but processed food items are consumed
mainly by urban Indians.
Within manufacturing, consumer durables production
expanded by 21 percent in October against (-)1.6 percent a
year ago. This could partly be attributed to revival in demand
due to the festive season.
Within consumer durables, auto industry reported double
digit sales growth in October.
Another segment of consumer goods, non-durable consumer
products, also recorded strong growth, with their production
expanding by 8.1 percent against (-)0.6 percent a year ago.
Among other categories, intermediate goods grew by 14.3
percent against (-) 4.4 percent a year ago.
It could safely be predicted that the industrial recovery
would be sustained, as capital goods expanded by 12.2 percent
against 4.2 percent a year ago. Basic goods could grow by 5
percent compared to 3.2 percent a year ago.
Industrial recovery could also be gauged from the fact
that out of 17 industrial categories, only one--jute and other
vegetable fibre textiles (except cotton)--recorded contraction
in production in October.
The September industrial production figures were revised
to 9.6 percent from the provisional estimates of 9.1 percent.
The government has cut excise duty by six percent in
phases, service tax by 2 percent, besides stepping up public
expenditure as part of stimulus packages to spur economic
growth.
The packages, along with the RBI's soft monetary stance,
are yielding results as shown by the latest set of industrial
data and earlier GDP numbers. This would also heighten the
debate as to when should these packages be withdrawn from, as
fiscal deficit is projected to widen to 6.8 percent growth
this fiscal.
In a pre-Budget meeting with Revenue Secretary PV Bhide,
a delegation from industry chamber FICCI asked the Finance
Ministry not to rollback stimuli unless the recovery is on a
firm footing.
PTI
First Published: Saturday, December 12, 2009, 08:54