Industrial growth has risen to 8.8 per cent in June, surpassing analyst expectations and also perhaps ruling out any immediate roll-back of the Reserve Bank of India’s (RBI) currently tight monetary stance.
The 8.8 per cent year-on-year increase in the official Index of Industrial Production (IIP) in June – as against 7.5 per cent in the same month of last fiscal – has been led by manufacturing and, within that, the sub-segment of capital goods.
Manufacturing growth stood at 10 per cent (compared with 7.9 per cent in June 2010), with the corresponding year-on-year increases for the other two major IIP constituents – mining and electricity – amounting to 0.6 per cent (6.9 per cent) and 7.9 per cent (3.5 per cent), respectively.
But the most impressive growth of 37.7 per cent – against 3.7 per cent in June 2010 – has been registered by capital goods, which is seen as a proxy for investment activity happening in the economy. This is particularly borne out by production of ‘electrical machinery & apparatus’ and ‘office, accounting & computing machinery’, which have grown by 88.9 per cent and 19.1 per cent respectively in June.
On the other hand, consumer spending does not appear all that robust. Both consumer durables (one per cent in June 2011 against 21.2 per cent in June 2010) as well as non-durables (2.1 per cent against 7.5 per cent) have recorded low growth rates. Some industries such as textiles (minus 4.3 per cent), wearing apparel (minus 5.5 per cent), wood & wooden products except furniture (minus 0.3 per cent), chemicals & chemical products (minus one per cent), rubber & plastics products (minus 0.3 per cent), radio, TV & communication equipment (minus 10.1 per cent), and medical, precision & optical instruments, watches and clocks (minus 10.3 per cent) have actually posted negative growth in June.
Among other manufacturing IIP sub-segments, production of basic goods and intermediate goods rose by 7.5 per cent and 1.9 per cent, with these coming on top of corresponding June 2010 growth rates of 3.7 per cent and 8.5 per cent.
The first quarter of the current fiscal has seen an overall industrial growth of 6.8 per cent, compared with 9.6 per cent during April-June 2010. The first quarter growth rates worked out to 7.5 per cent (10.3 per cent for the first three months of 2010-11) for manufacturing, one per cent (eight per cent) for mining and 8.2 per cent (5.4 per cent) for electricity.
The Central Statistics Office has also revised upwards its industrial growth estimate for May to 5.9 per cent, from the earlier 5.6 per cent. On the whole, the IIP data does not reveal any slowdown prompting the central bank to abruptly reverse its hawkish position on inflation. The general belief is that the RBI will keep its policy rates high, while closely tracking developments on the global economic front that might warrant any corrective action.