Industrial output climbed 2.5 per cent in March 2013, the fastest pace of expansion in five months. This performance was bolstered by a 3.2 per cent growth in manufacturing, that makes up three-fourths of the index of industrial production (IIP).
The rising output rate has raised hopes that the worst may be over for the economy and that the slowdown may have bottomed out.
Firm cues from Europe and better-than-anticipated IIP data helped buoy domestic sentiment and pushed the benchmark BSE Sensex up 143 points.
Encouraged by the pick-up in industrial growth, Economic Affairs Secretary Arvind Mayaram expressed confidence that economic growth would touch 6 per cent this fiscal if this trend in industrial performance were to continue and inflation moderated further.
However, many in industry and several economists did not share this optimism completely. They felt economic recovery may be some way off and the central bank should have an accommodative monetary policy to spur investments.
The March output growth was up from a revised 0.5 per cent increase in February, official data released on Friday showed.
Base effect
In use-based classification, capital goods output recorded a 6.9 per cent increase in March 2013. This was the first back-to-back monthly increase since mid-2011.
Coinciding with sluggish car sales, consumer durables such as refrigerators and washing machines saw a 4.5 per cent contraction in output. Consumer non-durables grew 6.5 per cent — the second strongest number since January 2012.
Industry representatives, however, pointed out that industrial output had contracted 2.8 per cent in March 2012 and that the base effect may have played out, especially in manufacturing.
The 3.2 per cent increase in manufacturing output comes over a negative base and can hardly be seen as a revival, said FICCI President Naina Lal Kidwai.
The overall slowdown in economic activity and consumer demand continues to constrain manufacturing growth, she said, adding that interest rates need to be further moderated to stimulate industrial activity.
Confederation of Indian Industry (CII) Director-General Chandrajit Banerjee expressed concern over the mining sector performance, which is still in negative terrain.
The contraction in consumer durables indicates subdued demand conditions, reinforcing the CII view that the sector is stymied by the high interest rates, he said.
Assocham Secretary-General D.S.Rawat said industry is still not out of the woods, as 12 out of 22 groups in the manufacturing sector have contracted. Industry has made a case for an accommodative monetary policy, even as RBI Governor D. Subbarao had recently signalled that there was little space to ease monetary policy further.
Revival measures
The Reserve Bank of India has so far this year cut interest rates by 75 basis points (in three steps) to help revive an economy that expanded at the weakest pace in a decade in 2012-13.
On an overall basis, factory output grew 1 per cent in 2012-13, lower than the 2.9 per cent growth the previous fiscal.
The UPA Government has, since last September, taken several steps to boost economic growth. These include reduction of energy subsidies, reducing withholding tax on interest earned by foreign investors and allowing more foreign investment in industries such as aviation and retail.