Monday, July 13, 2009

Revival on as factory output fires again

Revival on as factory output fires again
The Economic Times, July 11, 2009, Page 1

ET Bureau, NEW DELHI

Industrial output rose for the second straight month in May, drawing varying interpretations from the finance ministry and the Planning
Commission: the former saw it as one more sign of economic recovery, while the latter viewed the data with a little more circumspection.

Led by the consumer durables sector, the Index of Industrial Production rose by 2.7%, its biggest increase since October 2008. Industrial output, which expanded by a revised 1.2% in April, is seen as responding to the economic stimulus packages from the government.

Finance secretary Ashok Chawla said factory production was showing signs of improvement, indicating that the country is back on the trajectory of high growth. “This is what we were expecting, what we have been saying for some time now. Except capital goods and non-consumer durables, the rest are certainly looking much better. I think, we are back on track as was expected,” he told reporters.

While the 12.4% increase in the output of consumer durables such as refrigerators, televisions and electronic appliances boosted growth in the manufacturing sector to 2.5%, consumer non-durables (perishables such as food items) and capital goods continued to languish in negative territory. Electricity generation went up by 3.3% and the mining sector posted a growth of 3.7%.

Mr Chawla said he expected the growth trend to continue and that the sectors, which have shown “slight” negative growth, would improve in the coming months.

Planning Commission deputy chairman Montek Singh Ahluwalia, on the other hand, was chary of painting too rosy a picture too soon. “We do believe that the worst is over. But, there is difference between the worst being over and getting back to robust growth. The real question is that how rapidly we resume growth,” he said.

DK Joshi, principal economist at ratings agency Crisil, observed that nothing conclusive could be said about the months ahead, as the performance of industry is also linked to the monsoon.

“The growth in consumer durables and the cement and steel sectors can be directly attributable to the stimulus packages announced by the government,” Mr Joshi said.

He added, however, that if monsoon fails, the effects of the stimulus packages could get negated. Moreover, the performance of the industrial sector, this year, would not match that of previous years as exports are still low and demand in Western markets is yet to pick up, he said.

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