IIP growth at 9.1%, bears out rebound

IIP growth at 9.1%, bears out rebound
The Financial Express, November 13, 2009, Page 1

fe Bureau, New Delhi

India’s industrial output grew 9.1% in September from a year earlier, bearing out the economy’s rebound and giving the government reason to consider an earlier-than-expected exit from the fisc-straining economic stimulus. Industrial production data released on Thursday also raised expectations that the 6.5% growth in GDP forecast by the Prime Minister’s Economic Advisory Council for 2009-10 could indeed be achieved.

In the April to September period, industrial output, measured on the index of industrial production (IIP), increased 6.5%. Output will have to grow at close to 10% in the remaining six months of the fiscal for that forecast to come true.

The September industrial output growth is lower than the upwardly revised 11% growth seen in the previous month over the corresponding period a year ago, but much higher than the 6% expansion seen in September last year, a release by Central Statistical Organisation said. The rise in factory output during the month was due to enhanced production of intermediate products, capital goods as well as rise in the production of consumer durables.

Moreover, the latest IIP data shows a month-on-month jump of 17%, ie, September over August 2009. The better-than-expected IIP data, however, failed to cheer the markets much. Even though the Sensex pared earlier losses and entered positive territory after the IIP data was released, it soon returned to negative territory and ended the day shedding 153.6 points at 16,696.

Economists have endorsed the belief that the Indian economy is turning the corner. “The numbers are encouraging. It seems that recovery has set in and we will have demand support in the coming months,” said Madras School of Economics director DK Srivastava.

Yes Bank chief economist Shubhada Rao has increased her annual IIP growth forecast to 8% from 6.3%. “In the next six months, apart from support due to a low base effect, we will also see improvement in demand. In addition, the government’s stimulus measures and the focus on infrastructure will help in a strong growth rate. We do not expect any adverse shocks,” she said.

India’s industrial production has been moving northbound after dipping 0.24% in December—a first in about 15 years.

Apart from a Rs 1,86,000-crore fiscal stimulus package, RBI has pruned its lending rate by 425 basis points in the months between October 2008 and April 2009.

Significantly, merchandise exports, which is also a sign of industrial activity, has been increasing since April, even though it is still in the negative territory. Output from the manufacturing sector, which accounts for nearly 80% of India’s industry, grew 9.3% in September.

Mining output increased 8.6%, while electricity generation expanded 8%.

Overall industrial output was boosted by the consumer durables sector, which grew 22% in September, as factories produced more cars, two-wheelers and appliances like television sets. What is encouraging is that this growth took place, even as output from the sector had expanded nearly 15% in the year-ago month.

Another sector that provided some momentum to the index was intermediate goods, which expanded 11% in the month under consideration. A low base helped the sector see double-digit growth in September, as in the same month of last year it dipped 2.5%.