Industrial output growth rises to 8.8 %

Manufacturing sector and higher capital goods output drive growth in June

In what should have brought some cheer in an uncertain economic environment plagued by high inflation, industrial production grew by a better-than-expected 8.8 per cent in June to show ‘encouraging' signs of a moderate revival in factory output.

However, barring the government which hoped that the rising trend in industrial growth would sustain and boost overall economic growth, neither the stock market nor India Inc. felt enthused by the IIP (Index of Industrial Production) numbers. While the bourses ignored the positive cue and tanked further on fears of more rate hikes by the Reserve Bank of India, industry felt that the apex bank's likely action aimed at containing inflationary pressures would dampen the growth trend.

As per the official data released here on Friday, the 8.8 per cent IIP growth in June this year as compared to 7.4 per cent in the same month of 2010 was driven mainly by a good show by the manufacturing sector and higher output of capital goods.

In particular, while the manufacturing sector, which accounts for over 75 per cent of the IIP, grew by 10 per cent in June, 2011, as compared to 7.9 per cent in the same month last year, growth in the capital goods segment was a whopping 37.7 per cent during the month as against a modest increase of 3.7 per cent in June 2010.

During the month, electricity generation also improved to post a growth of 7.9 per cent as against 3.5 per cent in June last year. Growth in the mining sector, however, declined to a dismal 0.6 per cent from 6.9 per cent a year ago. The consumer goods sector, as a whole, also posted a paltry growth of just 1.6 per cent in June this year as compared to 13.3 per cent in the year-ago period

For the first quarter (April-June) of this fiscal, the IIP growth stood pegged at 6.8 per cent as against 9.6 per cent in the same period of 2010-11.

Commenting on the June IIP data, Finance Minister Pranab Mukherjee said: “It is encouraging. If this trend continues, it will give a boost to growth…If these growth rates are maintained for manufacturing and electricity, then that will be [a] substantial contribution to the positive growth. I do hope it would be possible for the industry to pick up the same growth rate sooner than later.'' However, Deloitte Haskins & Sells Director Anis Chakravarty viewed that it was too early to say whether this showed an overall cyclical turnaround.

Bringing in India Inc.'s perspective, apex chamber FICCI Secretary General Rajiv Kumar noted that the rebound in manufacturing sector's growth in June should not be mistaken to be the beginning of recovery in the industrial sector as the growth was still not broad-based.

“There are still a number of sectors like consumer goods and intermediate goods where the growth remains subdued. It is perhaps more an indicator of volatility in the index,” he said.

Looking at it from the inflation containment angle, RBI Deputy Governor Subir Gokarn said the June IIP numbers showed that moderation in economic growth was not broad-based. He noted that the RBI would take into account various other factors before deciding on whether to go for further rate hikes.

“We have been tracking other indicators as well. The first quarter corporate performance results are in. We will do some detailed analysis of that looking at credit flows... Ultimately, the decision would be based on all of these inputs taken together. One number here and there is not a decisive number,” he said.

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