New Delhi: Factory productions expanded at a greater pace for the second month in a row growing by 6.8 percent in July against 6.4 percent a year ago, signalling an industrial recovery.
And the trend, if sustained, could well offset the likely decline in farm output because of an erratic monsoon and help overall growth in the economy this fiscal.
Industrial growth for the first four months stood at 4.6 percent against 5.6 percent a year ago, after expansion in factory production is revised to 8.2 percent in June against 7.8 percent estimated provisionally.
It was for the first time in June that the industry grew at such a high rate, after hit hard by the global financial crisis in the middle of September last year.
While mining grew by a whopping 9.9 percent in July against a mere 2.8 percent, manufacturing, which constitutes around 80 percent in industrial production, expanded by 6.8 percent, slightly lower than 6.9 percent a year ago.
Electricity generation stood at 4.2 per cent in July against 4.5 percent a year ago.
But there is no unanimity whether the high industrial growth would continue. While Finance Secretary Ashok Chawla thinks the revival in industry would continue, many economists do not share this view as the credit offtake is not picking up and a slackening farm production would indirectly impact industry as well.
Asked whether the positive trend in industrial growth continue, Chawla told reporters, "yes."
But HDFC Bank Chief Economist Abheek Barua said "clearly there is sign of slow industrial revival. However, going forward, drought will take a toll and I expect IIP between 5 and 5.5 percent for the current fiscal. The recovery is not sustainable as there is no robust credit growth and the capital goods index is fluctuating."
Credit growth has witnessed a further 14.89 percent drop for a fortnight ending August 14, 2009 against 15.79 percent for the fortnight ending July 31, 2009, according to RBI.
Crisil Principal Economist D K Joshi also said, "There is definitely an upward trend but sustaining the trend would be a challenge. The credit has yet not picked up."
Industrial growth in the month of July was quite wide ranging as just two industrial groups--cotton textiles and jute fibre--posted a negative growth.
Consumer durable goods production, which for long registered a negative growth, expanded by a whopping 19.8 percent in June even on high base of 13.9 percent a year ago.
Consumer non-durable goods production grew by five percent against 3.4 percent a year ago. For the first four months, this sector registered a negative growth of 2.6 percent, showing dismal performance in earlier months. Consumer goods category is likely to do well in the festival season.
However, capital goods, which Barua was referring to,
grew by just two per cent against 17.9 percent a year ago.
Basic goods production was up 4.8 percent in July
against 5.3 percent a year ago.
So far as industrial groups are concerned, processed
food output, which has been declining for quite some time,
grew at a modest rate of 2.2 percent in July. For the first
four months of this fiscal, this category was down 13.1 percent since output had been declining in earlier months of this
fiscal.
However, output might again decline if farm production
does not match up to the industry demand.
The Indian economy grew by 6.1 percent in the first
quarter of this fiscal and the growth is widely expected to
decline in the second and third quarter of this fiscal.
Finance Minister Pranab Mukherjee, Planning Commission
Deputy Chairman Montek Singh Ahluwalia had earlier said the
growth might decline in second and third quarter due to likely
impact of a deficient monsoon on farm production.
But if industrial recovery continues, views on which
is not unanimous, negative impact on farm production could
well be compensated, so far as overall economic growth is
concerned.
India Inc pitches for cut in interest rates to sustain growth
New Delhi: India Inc today described 6.8 per
cent rise in July industrial output as "evidence of recovery"
and pitched for a cut in interest rate saying it was necessary
to sustain the growth momentum.
"Although performance in July has been somewhat lower
than the previous month...nevertheless robust growth in mining
and manufacturing have kept up the level of industrial growth
at a reasonable level of 6.8 per cent," FICCI Secretary
General Amit Mitra said in a statement.
Mitra said, "the industrial economy is passing through a
very critical stage...FICCI has therefore advocated the need
for a softer interest rate regime to aid the overall growth
process and encourage investments."
The RBI had cut reverse repo and repo rate by 25 basis
points each in April.
In June, the factory production was revised to 8.2 per
cent against 7.8 per cent estimated provisionally.
Assocham said in future, the impact of stimulus packages
would also add on to the recovery and "India could move on to
a close to 6.5 per cent of GDP in the current fiscal".
Bureau Report
First Published: Friday, September 11, 2009, 19:01