Industrial production recovered to a 16-month high of 8.2 per cent in October, mainly on account of a rebound in capital and consumer goods and the statistical impact of a low base.
The Government’s moves since September to overhaul certain policies and the festival demand in end-October augured well for factory output growth during the month.
Industrial output had contracted 0.7 per cent in September. In October last year, it had shrunk 5 per cent.
The jump in the index of industrial production (IIP) in October is “very encouraging”, said Finance Minister P. Chidambaram, who saw indicators of ‘green shoots’ in the economy.
RBI policy review
But a spike in retail inflation in November, at 9.9 per cent, from 9.75 per cent in October, coupled with the resurgence in factory output, may prompt the Reserve Bank of India to keep policy rates unchanged on December 18. The RBI is due to come out with a mid-quarter monetary policy review on that day.
India Inc expressed hope that the RBI would start reducing interest rates from January next year and that reforms initiated by the Government would be passed by Parliament.
Reacting to the IIP growth numbers, Chidambaram said that so far this fiscal IIP had shown positive growth only in May, at 2.5 per cent, and August, at 2.3 per cent. “Let’s see what the next four months bring us”.
He said investments are taking place, capacities are being created and there is higher production of consumer durables and consumer non-durables in the country, even as consumption of these goods grows.
This October, capital goods output expanded 7.5 per cent from a 12.9 per cent contraction a month ago. It had contracted 26.5 per cent last October.
Cumulative growth
The capital goods segment has seen growth for the first time since April this year, Chidambaram pointed out.
While the manufacturing sector climbed 9.6 per cent (-6 per cent), the power sector registered a rise of 5.5 per cent (5.6 per cent).
Mining sector output shrank 0.1 per cent, lower than the contraction of 5.9 per cent the same month last year.
For the cumulative period April-October 2012, the IIP grew 1.2 per cent, lower than the 3.6 per cent recorded in the same period last year.
C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, told a TV channel that he would be happy if industrial output growth is in the region of 7 per cent for the second half. This will lead to 3.5 per cent industrial growth for the year as a whole.
It will then be consistent with GDP growth of 5.5-6 per cent in 2012-13, according to Rangarajan.
The immediate expectation is that inflation should fall further from the 7.5 per cent recorded in October this year, he said.