The Hindu Business Line : Industrial output posts 7.6% growth in Dec

New Delhi, Feb. 12 Indian industry seems to be entering a ‘moderation of growth’, even if not a ‘slowdown’, phase. The official Index of Industrial Production (IIP) has registered a 7.6 per cent year-on-year increase during December, marking a second successive month of sub-par growth following the 5.1 per cent of November.

But there is an element of statistical illusion in the 7.6 per cent figure in the latest recorded month. For, it comes on a high base growth rate of 13.4 per cent during December 2006, just as the 5.1 per cent IIP increase for November 2007 was over and above the 15.8 per cent in November 2006.

Moreover, among the IIP’s main sectoral components, the manufacturing index has risen by a reasonably healthy 8.4 per cent year-on-year in December (though below the 14.5 per cent for the same month of the previous year). But not so in the mining and electricity generation where the corresponding growth rates stood at three per cent (against 6.1 per cent in December 2006) and 3.8 per cent (9.1 per cent), respectively.

The fact that manufacturing continues to be doing reasonably well only shows that talk of a slowdown are somewhat premature at this stage. It would probably be more appropriate to believe that the economy is cooling off from a previously overheated state - which many economists would say is not a bad thing after all.

For the first nine months of the current fiscal, industry as a whole has grown by nine per cent (compared to 11.2 per cent in April-December 2006), with these standing at 9.6 per cent (12.2 per cent) for manufacturing, 4.9 per cent (4.4 per cent) for mining and 6.6 per cent (7.5 per cent) for electricity.

The IIP data, moreover shows a 16.6 per cent rise in production of capital goods in December and 20.2 per cent during April-December 2007. This comes on the corresponding previous year’s growth rates of 26.2 per cent and 18.6 per cent.

The high growth in this sub-sector is indicative of buoyant investment activity. This, in turn, seems to be replacing the earlier consumption- and export-driven growth phase. Proof of this is in consumer durables, which has recorded growth rates of 2.2 per cent in December 2007 (1.8 per cent in December 2006) and 1.3 per cent in April-December 2007 (11.2 per cent in April-December 2006).

Similarly, consider two significantly export-oriented industries - textiles and leather. In December, the indices for ‘cotton textiles’, ‘wool, silk and man-made fibre textiles’ and ‘textile products (including wearing apparel) rose by a mere 1.3 per cent, minus two per cent and one per cent, respectively, with the corresponding cumulative growth rates for April-December being 4.6 per cent, 3.3 per cent and 3.9 per cent. It was even worse for ‘leather and leather & fur products’: 3.6 per cent in December and 1.9 per cent in April-December.

The rupee appreciation has, thus, clearly impacted export-based activity, just as high interest rates have hurt sales of consumer durables. On the other hand, neither of these have affected investments in plant and machinery, with corporates managing (at least till now) to raise monies from the primary market to finance their capital expenditure plans.