Although
economists said the growth in industrial production may not remain as
buoyant, the government was of the opinion that expansion in the fourth
quarter will be more.
NEW DELHI: The New Year seems to be bringing some cheer with the
emergence of some green shoots in the economy. Industrial production
rose by 5.9%, the fastest pace of expansion in five months, on account
of a better performance by manufacturing and electricity sectors.
What's more, it reversed sentiments, which fell to new lows following a 5.1% dip in factory output in October when the government released the data last month. Those numbers have now been revised to a 4.7% contraction. In November 2010, the index of industrial production had grown by 6.4%.
In the last few months, policymakers have been hit by a series of bad news on the economy as inflation has remained above 9% and economic growth has been moderating every quarter, prompting the government to lower the forecast for the year to 7%. To add to it, investment decisions have been put on hold as interest rates have risen and consumer demand has been impacted.
With food inflation also falling 2.9% for the week-ended December 24,
the good news seems to be flowing in. But the bad news is that the
recovery in industrial output may just prompt the Reserve Bank of India to defer a rate cut in the monetary policy review later this month.
After raising key policy rates 13 times since March 2010, RBI opted against increasing rates in December. Economists said RBI governor D Subbarao may want to watch how the situation pans out over the next couple of months and opt for a rate cut later.
The government, however, seemed to suggest that the policy focus needs to change to boost investment in the economy and spur economic activity further. "We need to build on this recovery with a stronger performance of capital goods and therefore investments, to recover the growth momentum in the remaining months of the current financial year. The policy focus will have to be accordingly adjusted," finance minister Pranab Mukherjee told reporters.
Barring capital goods, where output fell 4.6%, the other sectors fared better with growth of durables (11.2%) and non-durables (14.8%), suggesting that consumer demand remained strong. Of the 22 sub-sectors for which data was released, 17 were in positive terrain.
Economists said that more working days boosted production in factories. As a result, manufacturing sector saw production rise by 6.6% on the back of a rise in motor vehicles, food and publishing sectors. Electricity production rose at a more impressive 14.6%. But mining continued to languish with output contracting by 4.4%, the fourth straight month of decline.
Although economists said the growth in industrial production may not remain as buoyant, the government was of the opinion that expansion in the fourth quarter will be more. "We will do better in the fourth quarter (January-March) as the fundamentals are strong and domestic demand will help manufacturing. Even exports will do better. In October, we lost a few days due to holidays and that also affected the overall production data," industry secretary P K Chaudhery said.
"The strength at least in part reflected the timing of Diwali and thus could prove temporary. Given output has fallen in four of the past five months by our estimates, a further deterioration in overall production growth in Q4 as whole is all but inevitable," BNP Paribas, the French finance major, said in a research note.
Citi India economist Rohini Malkani also raised questions over data volatility in recent months.
"The rebound in industrial growth as per November IIP figures need to be seen with caution as some of the fundamental trends remain weak," Marico chief Harsh Mariwala said.
But the government was certainly rejoicing. "Clearly, the industrial growth of almost 6% is a good change... I think it hopefully indicates that slowdown in industry will basically come to an end during the third quarter (October to December) of the financial year," Planning Commission deputy chairman Montek Singh Ahluwalia said.
What's more, it reversed sentiments, which fell to new lows following a 5.1% dip in factory output in October when the government released the data last month. Those numbers have now been revised to a 4.7% contraction. In November 2010, the index of industrial production had grown by 6.4%.
In the last few months, policymakers have been hit by a series of bad news on the economy as inflation has remained above 9% and economic growth has been moderating every quarter, prompting the government to lower the forecast for the year to 7%. To add to it, investment decisions have been put on hold as interest rates have risen and consumer demand has been impacted.
After raising key policy rates 13 times since March 2010, RBI opted against increasing rates in December. Economists said RBI governor D Subbarao may want to watch how the situation pans out over the next couple of months and opt for a rate cut later.
The government, however, seemed to suggest that the policy focus needs to change to boost investment in the economy and spur economic activity further. "We need to build on this recovery with a stronger performance of capital goods and therefore investments, to recover the growth momentum in the remaining months of the current financial year. The policy focus will have to be accordingly adjusted," finance minister Pranab Mukherjee told reporters.
Barring capital goods, where output fell 4.6%, the other sectors fared better with growth of durables (11.2%) and non-durables (14.8%), suggesting that consumer demand remained strong. Of the 22 sub-sectors for which data was released, 17 were in positive terrain.
Economists said that more working days boosted production in factories. As a result, manufacturing sector saw production rise by 6.6% on the back of a rise in motor vehicles, food and publishing sectors. Electricity production rose at a more impressive 14.6%. But mining continued to languish with output contracting by 4.4%, the fourth straight month of decline.
Although economists said the growth in industrial production may not remain as buoyant, the government was of the opinion that expansion in the fourth quarter will be more. "We will do better in the fourth quarter (January-March) as the fundamentals are strong and domestic demand will help manufacturing. Even exports will do better. In October, we lost a few days due to holidays and that also affected the overall production data," industry secretary P K Chaudhery said.
"The strength at least in part reflected the timing of Diwali and thus could prove temporary. Given output has fallen in four of the past five months by our estimates, a further deterioration in overall production growth in Q4 as whole is all but inevitable," BNP Paribas, the French finance major, said in a research note.
Citi India economist Rohini Malkani also raised questions over data volatility in recent months.
"The rebound in industrial growth as per November IIP figures need to be seen with caution as some of the fundamental trends remain weak," Marico chief Harsh Mariwala said.
But the government was certainly rejoicing. "Clearly, the industrial growth of almost 6% is a good change... I think it hopefully indicates that slowdown in industry will basically come to an end during the third quarter (October to December) of the financial year," Planning Commission deputy chairman Montek Singh Ahluwalia said.
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