The Index of Industrial Production bounced back into positive territory in April, confirming the upturn in the economy.
Two features stand out in the April data. First, growth in the capital goods sector continued to be negative year-on-year (y-o-y). That should soon be remedied, once the government’s plans to spend large amounts on infrastructure start bearing fruit.
But the slack in the sector also shows that government spending is essential to keep the industry going.
Rather strangely, the machinery and equipment industry group grew a healthy 9% y-o-y.
The second point is that the 16.9% y-o-y growth in consumer durables possibly indicates that the rate cuts are at last working.
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Take a look at the auto index on the Bombay Stock Exchange (BSE), up 32.5% over the past one month. The rate of growth in consumer durables has been going up steadily every month, as the chart shows.
The 16.9% y-o-y growth in consumer durables possibly indicates that the rate cuts are at last working. Sandeep Bhatnagar / Mint
On the other hand, non-durable consumer goods growth has been showing increasingly negative rates of growth every month and some analysts say that the fall in sugar production is one reason.
The food products industry group has been contracting y-o-y at double digit rates since January. The fall in consumer non-durables is a concern, although other data, such as cement offtake, shows that rural demand continues to be strong.
Interestingly, this difference between the growth rates of consumer durables and non-durables is seen also in the stock market, where the BSE Auto Index is up 18% y-o-y, while the BSE FMCG Index is down 0.83% y-o-y, in spite of being a supposedly defensive sector.
The other positive factor is that as many as 12 of the 17 major industry groups showed growth in April, up from six industry groups in March. That indicates the recovery is broad-based. But both low interest rates and government spending on infrastructure continue to be essential to keep the recovery going.
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