Strong consumer demand and an export recovery continue to spur industrial growth. Last year’s low base is also partly contributing to the high growth number. The spectacular growth numbers would provide the government some confidence to consider the rollback of selective fiscal measures in the coming Budget.
Beating market expectation, industrial production growth in December stood at 16.8%, the highest in 15 years. The manufacturing sector, which has an 80% weight in the overall Index of Industrial Production (IIP), continued to sizzle on resilient domestic demand and improving exports.
Also See On Growth Track (Graphics)
Manufacturing clocked 18.5% growth in December. The other two components of IIP—mining (9.5%) and electricity (5.4%)—also contributed. Within use-based categories, while consumer durables (46%), intermediate goods (21.7%) and capital goods (38.8%) registered robust growth, consumer non-durables (3.7%) growth remains sluggish.
The robust IIP growth numbers were partly supported by a low base.
Both IIP and manufacturing in December 2008 witnessed the biggest contraction in almost two decades. Though there was a sequential improvement in industrial production (10.9%) in December, the monthly comparison is not an apt way to arrive at a conclusion given the seasonality factor.
An improved outlook for exports has also boosted industrial growth in recent months. Strong demand for consumer durables, primarily supported by robust auto sales, also contributed to strong industrial growth.
The spectacular IIP growth numbers indicate that the on-going fiscal stimulus, low cost of borrowing and rise in the salaries of public servants have boosted demand. Within the manufacturing sector, transport equipment posted a whopping 82.2% growth, followed by 44.6% growth in machinery and equipment. On the other hand, other manufacturing industries and food products posted negative growth of 9.4% and 6.9%, respectively.
The low base and improved demand outlook in both domestic and international markets are likely to keep IIP growth close to double digits until May. As the low base effect wanes after May and the government rolls back selective fiscal stimulus in the coming budget, we maintain our call of industrial growth in FY11 to remain lower than in FY10.
Graphics by Yogesh Kumar/Mint