The Hindu Business Line : Industrial growth hits 8-month high

New Delhi, July 10 Indian industry has registered a year-on-year growth of 2.66 per cent in May. Although modest, it is the best since the 6.03 per cent rate notched up for September.

The 2.66 per cent annual increase in the official Index of Industrial Production (IIP) for May – as against 1.20 per cent, minus 0.75 per cent, 0.22 per cent, 1.03 per cent, minus 0.25 per cent, 2.53 per cent and 0.11 per cent in the preceding seven months – holds hope that a gradual recovery (‘green shoots’) is underway.

‘Worst is over’

“The worst is over,” said Mr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, even while noting that “there is a difference between the worst being over and getting back to robust growth.” The real issue now, he added, was how rapidly the ‘robust growth’ phase would resume.

The 2.66 per cent overall IIP growth in May – on top of 4.37 per cent during the same month last year – has been led mainly by electricity and mining.

These two sectors have grown by 3.26 per cent and 3.72 per cent, as compared to their corresponding May 2008 year-on-year increases of 1.99 per cent and 5.53 per cent respectively.

Manufacturing

The manufacturing index, on the other hand, has recorded a lower growth of 2.52 per cent (against 4.49 per cent in May 2008), though it is better than the 0.42 per cent in April, minus 1.65 per cent in March, minus 0.88 per cent in February, 0.96 per cent in January and minus 0.59 per cent in December. Again, one could say that this sector, too, has “bottomed out” and further improvement is in sight.

For the April-May period, the overall industrial growth amounted to 1.92 per cent (versus 5.3 per cent for the first two months of 2008-09), while being 1.49 per cent (5.6 per cent) for manufacturing, 3.79 per cent (5.8 per cent) for mining, and 5.08 per cent (1.7 per cent) for electricity.

Within manufacturing, it is ‘consumer durables’ that has notched up an impressive 12.38 per cent growth rate in May (against 2.81 per cent for the same month last year). For the two months of the fiscal, this sub-sector has grown by 14.65 per cent (three per cent during April-May 2008), showing that it is clearly out of the woods now.

The same cannot be said, however, about ‘capital goods’, the index of which fell year-on-year for a second successive month by minus 3.58 per cent in May and minus 5.35 per cent in April-May (it had risen 4.27 per cent in May 2008 and eight per cent in April-May 2008). Decline in production of capital goods is suggestive of slack investment demand among corporates, the revival of which will probably require a sustained economic recovery.

Among other ‘use-based’ sectors, the index for ‘basic goods’ went up by 3.78 per cent in May and 4.21 per cent in April-May (versus 3.04 per cent in May 2008 and 3.5 per cent in April-May 2008), with these correspondingly standing at 6.13 per cent and 6.69 per cent (1.85 per cent and 2.5 per cent) for ‘intermediate goods’, and minus 2.30 per cent and minus 5.81 per cent (8.97 per cent and 9.5 per cent) for ‘consumer non-durables’.