SPEED MACHINES: IIP RISES 11.7% IN NOV ’09

SPEED MACHINES: IIP RISES 11.7% IN NOV ’09
The Economic Times, January 13, 2010, Page 1

Industry grows fastest in 2 yrs

Robust industrial output, amid a continuous surge in consumer goods, reaffirms hopes of 8-9% GDP growth while raising fears of a rate hike to check inflation

Our Bureau NEW DELHI

INDUSTRIAL production grew at a two-yearhigh 11.7% in November 2009, putting India on track to achieve an 8% economic growth in the current financial year and strengthening the calls for a hike in interest rates to tame rising prices.

“It (industrial growth) is very good. I expect the trend to continue,” said Kaushik Basu, chief economic adviser to the finance ministry.

The better-than-expected industrial output growth, boosted by a massive 37.3% jump in consumer durables and 12.2% increase in capital goods, however, failed to lift the market that ended in the negative territory due to selling pressure on front-line stocks.

Industrial growth in November 2008 was a lowly 2.5%, exaggerating the rate of expansion in November 2009. Output grew 10.3% in October 2009. The stellar output growth figure for November, however, is dwarfed by the 19.2% growth reported by China for the same month.

Industrial output grew at its fastest pace since October 2007 as the economy began to consume and invest more, suggesting that it may no longer need the stimulus offered in the form of low interest rates and high government spending.

Favourable economic growth and high inflation may prompt RBI to absorb excess liquidity in the system through a hike in cash reserve ratio—interest-free reserves banks keep with the central bank—and even raise interest rates when it undertakes the quarterly review of the monetary policy later this month. Bond yields rallied to a near 15-month high after industrial production data were released in anticipation of a rate hike.

The pick-up in investments highlighted by higher capital goods output has also been validated by a marginal increase in Customs collections for December 2009, suggesting higher non-oil imports.

“We will have to revise our GDP estimates for the year. It is currently at 7%, but we will revise it to 7.3-7.4%,” said Abheek Barua, chief economist at HDFC Bank.

The Indian economy grew at 7.9% in the July-September 2009 quarter, taking overall growth for first half of the current fiscal year to 7.1%, prompting the government to say it could meet or even exceed the 7.75% forecast for the year.