Factory output rise revs up revival signs

Factory output in April rose 1.4 per cent from a year earlier, recovering from a revised fall of 0.8 per cent in March and bettering forecasts for a decline of 0.2 per cent, adding to signs from China that activity in emerging economies was picking up.

Output had fallen in three of the previous four months. “Output growth almost certainly bottomed on a year-on-year basis in March and we are looking for a healthy upward trend to develop from here,” HSBC Economist Robert Prior-Wandesforde said. “It also fits in with our theory that the rebound in industrial production is due to domestic demand, the same case as with China,” he said.

Manufacturing output, which accounts for about 80 per cent of India’s industrial production, rose an annual 0.7 per cent in April, the first month of the 2009/10 fiscal year.
Suresh Tendulkar, head of Prime Minister’s Economic Advisory Council, said there were signs of recovery in the data. “Worst is over, that is what I have been saying. Worst is over for the economy.”

The benchmark 10-year bond yield rose as much as 6 basis points to a two-month high of 6.94 per cent after the data, which was seen pointing to an end to the central bank’s aggressive rate cuts.

However, certain crucial sectors like consumer non- durables, including processed food products and capital goods posted negative growth. Processed food items declined by a whopping 34 per cent.

Also, 1.4 per cent growth in factory output is no match for the 6.2 per cent expansion it clocked in the same month last year. Nonetheless, slowdown in industrial growth, as measured by the Index of Industrial Production (IIP), appears to be bottoming out.

“We have bottomed up and we are on a path of recovery,” economic think-tank National Institute for Public Finance and Policy’s Director Govinda Rao said. The biggest surprise in IIP data was the electricity generation which grew by 7.1 per cent in April against 1.4 per cent in the same month a year ago.  Manufacturing, which has a weight of around 80 per cent in IIP, grew by 0.7 per cent from 6.7 per cent. Mining grew by 3.8 per cent in the month compared with 6.1 per cent in April, 2008. Consumer non-durable output on other hand contracted by 10.4 per cent in the period against 10 per cent growth in the same month a year ago. Capital goods production declined by 1.3 per cent against growth of 12.4 per cent.

Industry had grown by merely 2.6 per cent last fiscal against 8.5 per cent in the previous year. Meanwhile, the industrial growth figures for March was revised up to (-) 0.75 per cent from provisional estimates of (-) 2.3 per cent.

As many as 11 out of 17 industry groups showed a growth. However, food products continued to contract drastically by 34.4 per cent in April.

Domestic demand

The data also reinforced other signs that domestic demand was picking up in India. Stronger-than-expected March quarter growth helped Asia’s third-largest economy expand by 6.7 per cent in 2008/09, although that was a six-year low and well below rates of 9 per cent or more for the previous three years.

The signs of a bottoming in growth have seen economists revise up their forecasts for 2009-10, with the RBI’s estimate of about 6 per cent now at the bottom of private sector economists’ expectations.