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Industrial Growth at 10.4%

The figures for industrial output growth are the best in 22 months

The economy is back to speeding after the global meltdown-enforced slowdown. Data on industrial output, measured by the index of industrial production (IIP), revealed on Monday, pegged growth at 10.4 per cent in August after falling to as low as -0.5 per cent in January. It was 7.2 per cent in July.

It was a welcome sign that the drought has not had the kind of debilitating effect that was bandied about in July and August – rainfall was short by almost 23 per cent. Out of the 17 groups that industry has been divided into, 14 have indicated positive growth.

In fact, the growth in industrial output was the best in 22 months as the demand remained strong for the capital goods and consumer goods sectors and marked five consecutive months of positive performance – consumer durables sector grew by 22.3 per cent. Capital goods sector grew by 8.3 per cent.

The figures have again showed that the economy is turning around steadily and that may worry corporates. The reason is that the revitalised economy may be the signal that the government is waiting for to end the fiscal and monetary stimulus measures, especially as inflation is expected to rise strongly in the coming months after falling, and staying, in the negative zone for weeks and weeks.

The overall feelgood factor stemmed from manufacturing growth (10.2%), mining growth (12.9%) and electricity growth (10.6%). The growth figures in mines, factories, and utilities has grown by 9.7 per cent – the same-period figures for last year was as low as 1.7 per cent.

The exact reasons are still unclear for this boost as many are giving credit for the same to the government unleashed stimulus packages that added up to more than 12 per cent of India’s gross domestic product (GDP), according to some analysts – it included the central bank cutting interest rates on 6 occasions as well as the Sixth Pay Commission windfall for the government bureaucracy too.

The economy has grown by 6.1 per cent in the first quarter and this raises the prospects for GDP growth for the fiscal to be above 6 per cent too.

That the trend may well become lasting was pointed out by the Sensex, which rose by as much as 384 points or 2.31 per cent on Monday to over 17,000 points mark – foreign institutional investors invested an amount of Rs 963 crore in the markets.