Industrial output rose 10.7% in August
13 Oct, 2007, 0031 hrs IST, TNN
NEW DELHI: The bulls may have left the Street for an early weekend but those buying the India Story were proved right on Friday. Industrial output rose 10.7% in August compared to 10.3% in August 2006. The output had slipped to 7.1%(now revised to 7.5%) in July fuelling concerns that economic growth was moderating.
What makes it sweeter is that the higher growth is on a high base of 10.3% in August 2006, which was mainly boosted by lower growth of 7.4% in August 2005.
“Last month’s drop in the index of industrial production (IIP) was an aberration. I expect the industry to average a growth of 9% this year,” economist Omkar Goswamy said.
The April-August industrial growth, however, slipped to 9.8% from 11% logged in the first five months of the previous fiscal year. Industrial output had been consistently at sub-10% levels in the past three months with higher interest rates slowing down manufacturing and consumer spending.
Optimism about the Indian growth story is all-pervasive. ADB, on Friday, upped India’s FY08 economic growth forecast to 8.5% against the earlier projection of 8%.
“The numbers are above our expectations and show that concerns about an impending slowdown are greatly exaggerated,” said ICICI Securities analyst A Prasanna.
All the three industrial sectors — mining, manufacturing and electricity — showed double-digit growth in August. The manufacturing sector notched 10.4% growth, marginally down from 11.9% in the same month previous fiscal year. It has, however, bounced back from last month’s 7.2%. Manufacturing contributes about 15% to GDP and nearly 80% to industrial output.
The industrial data released on Friday showed demand for consumer goods fell, hurt by monetary tightening, but was more than offset by demand for capital goods and a pick-up in mining activity and electricity generation. The mining sector showed stupendous recovery, recording a growth rate of 17.1% against a decline of 1.7 % in the corresponding month of 2006. Mining had grown by just 4.9% in July 2007.
Electricity generation during August grew by 9.2% compared to 4.1% a year ago.
In the manufacturing sector, the capital goods sector kept the flag flying with a robust 30% growth in August, compared to 16.6% in the corresponding month of 2006.
Consumer durables continue to remain a concern area declining 6.2% compared to 19% growth in August 2006.
Analysts hope the festival season will help consumer demand rebound. Some banks have cuts rates for consumer loans to push demand for homes, cars and TVs.
Basic goods and intermediate goods recorded growth rates of 13.3% and 12.3%, respectively, during August, compared to 4.8% and 8.7%, respectively, in the corresponding period last year.
With industrial growth showing signs of recovery, some analysts feel inflation may resurface. They said in this backdrop, the central bank may not go for cut in rates.
Anjali R,Pune,says:A good sign!! After registering a single digit growth in July 2007, the market expected a slow down in economy. But the impressive, above-expected growth in IIP in August 2007 has rebuilt more confidence in Indian growth story. India's industrial production growth exceeded expectations in August, accelerating for the first time in four months, as record investment in factories, roads and power plants boosted demand for cement and steel. The continuous slowdown in inflation, more efforts towards infrastructure development, rising income leading to rise in demand has all led to rise in IIP. However, the high interest rates have hit the consumer durable segment, which has registered a decline in August. Also the continuous appreciation in rupee and excess liquidity in the market is a cause of concern. RBI may increase the CRR to curtail the liquidity in the system after having low inflation and impressive IIP figures. But the central bank has to look at the decelerating credit off take from banks which may further get affected because of CRR hike.
13 Oct 2007, 1042 hrs IST
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