There is little room for ambiguity in interpreting the recently released data on the index of industrial production (IIP). Industrial output recorded a 10.4 per cent year-on-year jump in August on top of a 7.2 per cent increase in July. It can be argued that the double-digit growth, the highest in 22 months, was partly due to the base effect: last year the IIP increased by just 1.69 per cent. However, a great deal of corroborative evidence is emerging that points to a consolidation of the recovery phase that began in June. There has been a sequential growth since May when the IIP grew by just 2.1 per cent. The rate shot up to 8.21 per cent in June. It is noteworthy that both in July and August manufacturing, which accounts for 80 per cent of the index, grew at almost the same rate as the overall index. Mining and electricity output, both growing in double digits, were significantly higher than last year. All these suggest that the recovery is more evenly spread than what was previously thought. Further corroboration of that is seen from the fact that 14 out of the 17 segments of the manufacturing sector saw growth in August, seven of them by at least 10 per cent. Altogether during the three-month period, June-August, the increase in the IIP has been at a healthy 8.6 per cent, sharply higher than the 4.5 per cent last year.
There is also sectoral evidence confirming the consolidation of industrial recovery. For instance, the two important segments of manufacturing — transportation equipment, and machinery and equipment — grew by 13.8 per cent and 14.2 per cent respectively. There is a big spurt in passenger car sales, with many popular models available only after a waiting period. Textile products clocked an impressive 16.4 per cent growth mainly due to a surge in domestic demand ahead of the festival season. It is also noteworthy that exports of garments are recovering, albeit slightly. Textiles have been among the worst affected by the sharp contraction in exports. Consumer durables have continued their remarkable run, growing by over 22 per cent. The implementation of the Pay Commission award is said to be the main reason. For policy makers, however, the strong rebound in the IIP numbers notwithstanding, the time is not opportune to phase out the stimulus packages or to move towards monetary tightening. The economy grew by 6.1 per cent during the first three months and the expectations are that until it moves into a higher trajectory the stimulus measures will continue.
