The Hindu Business Line : Working industriously

For the United Progressive Alliance Government entering its fourth year, the best news will come after the rains; a favourable season should help dampen prices by easing supply problems that are stoking inflation. But any good news is welcome and the Finance Minister's response to the latest data on industrial output about sums up the feeling in New Delhi. With a 13.6 per cent year-on-year growth in April, industrial production represents a "satisfactory start" to the new fiscal. Mr P. Chidambaram was being cautious because obviously it was only a month's performance. Actually, a sombre view of the organised sector's performance is justified by a closer look at sector-wise data.

The Central Statistical Organisation (CSO) figures for manufacturing in April look as impressive as the overall industrial output data with 15.6 per cent growth. It is the second best in a decade, two percentage points lower than the output last November. Consumer non-durables boosted the April numbers along with `Wood Products' that showed an astronomical 92 per cent growth, and `Food Products' (55 per cent). These are of course quick estimates and a few months down the line there may be some revisions. But some sectors are showing signs of a deceleration that should keep the policymakers from feeling overly optimistic. Basic goods at 8.9 per cent and capital goods at 17.7 per cent have climbed down a peg or two from the April 2006 levels. Other key indicators, mining, transport equipment, have also shown low growth rates as has consumer durables. Anecdotal evidence suggests the Reserve Bank of India's hardening interest rate stance is having some effect, for instance, on automobile sales. The decline in capital goods is partly the result of surging imports, and the 7 per cent growth in the textile sector does not augur well for its export potential. The export sector has been worried about the impact of a rising rupee but it needs to first examine the causes for its lacklustre performance in April. Similarly, transport equipment and parts has shown a poor growth at 5.5 per cent; once again, imports may be cutting into the market for the domestic players but the fact that automotive components can become rising foreign exchange earners is a matter that requires some urgent attention.

The April quick estimates present a mixed picture of cause and effect. Just how much attempts to control demand are working is unclear and the CSO data do not shed any light on the direction of sectoral growth rates. Both freer imports and interest rates are working their effects on domestic output. Just how the industrial sector pans out will become clear by the end of the first quarter.