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Industrial growth turns the corner

New Delhi, Sep 12, 2013, DHNS: 3:39 IST
Following an improved performance in exports, India’s industrial production growth, too, returned to a positive terrain in July after two successive months of contraction. Retail inflation for August also eased slightly to 9.52 per cent from 9.64 per cent in June.

This indicates that the economy is on the path of recovery. In another sentiment booster, the UN Conference on Trade and Development (Unctad) has projected India’s economy to grow by 5.2 per cent in calendar year 2013. Although this is lower than the International Monetary Fund's projection of 5.6 per cent for the year, it is better than last year’s decade-low GDP growth rate for the country.

The July IIP reading of 2.6 per cent was driven by robust growth in manufacturing and electricity sectors. Both sectors together have a weightage of 90 per cent in the Industrial Production Index.

Capital goods, too, performed an impressive 15.6 per cent growth. Consumer goods output declined year-on-year. The fine print of IIP data showed most of exports items such as leather garments and apparels witnessed robust growth. The fall in consumer goods output, however, indicated subdued demand in the economy due to depreciation of the rupee and high inflation which have eroded people’s purchasing power.

Consumer demand, especially in rural areas, is set to rise in coming months supported by a robust monsoon and increase in government expenditure ahead of the general election. The Unctad report also said that India ’s economy will grow on the back of rising domestic demand.

The strong growth in capital goods in industrial output surprised economists and market players as there is little evidence to show that the investment cycle is picking up. The growth in capital goods output is mostly contributed by growth in electrical machinery segment while others like plastic machinery have registered negative growth.

The IIP for June was revised upwards to a decline of 1.78 per cent from a provisional 2.2 per cent dip in production.

The positive manufacturing growth for July, though over the low base, did indicate some signs of upturn in the sector as a result of certain initiatives taken by the government to remove supply bottlenecks by clearing some large projects in the last few months.


"We hope that the manufacturing sector is able to achieve higher growth in the next few months backed by festive demand and improved export prospects," industry body Ficci said in a statement.

Ficci's latest quarterly manufacturing survey also indicates a slight upturn in manufacturing activity from July-September period onwards.

The CII, however, said a growth in manufacturing in one month should not distract us from the core issue that this sector in India is performing far below its potential. The CII demanded the National Manufacturing Policy be implemented with “alacrity”.
“The entire problem of current account deficit is a result of this deficiency, and significant interventions are required to ensure that India ’s manufacturing competitiveness improves,” It said.

Meanwhile, mining output declined 2.3 per cent in July. In April-July, the sector declined 4 per cent compared with a contraction of 2 per cent in the corresponding period.

Analysts said bottlenecks in the mining sector were creating a structural problem for the economy.

Official data showed that inflation in the food and beverages segment eased to 11.06 per cent in August as against 11.24 per cent in July.

However, there was no reprieve in vegetable prices as they increased by 26.48 per cent as against inflation of 16.4 per cent in July. Fruit prices, however, softened in August.

The decline in retail inflation comes close on the heels of the Reserve Bank's mid-quarter monetary policy review on September 20. A considerable ease in inflation is expected to help RBI shift its monetary policy focus towards enhancing growth.
The Unctad said growth in some large developing economies such as India, Brazil, Argentina and Turkey, which was subdued in 2012, may accelerate in 2013.

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