FE Editorial : Growing green shoots

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: Are the green shoots growing? The 2.7% figure for the index of industrial production in May has surprised everyone. The highest industrial growth since September 2008, when the global financial crisis hit, May’s figure is almost double what informed opinion had expected. However, a closer reading of the data reveals more nuanced and less reassuring aspects. Industrial growth seems to be driven by consumer durables and related segments. Investment, the prime growth driver in recent times—as even the Budget’s introductory remarks acknowledged—has not shown any significant sign of a pick up. Also worth highlighting is the continued patchy performance of sectors that produce articles of daily consumption. In consumer durables, growth had first picked up, hitting 5.5% in the last quarter of 2008-09 and then further accelerated to 14.7% in the first two months of 2009-10. The sustained momentum in the consumer durables segment seems to have been transmitted to the intermediate and basic goods segments, which together account for close to two-thirds of industry. Production contraction in the intermediate goods sector in the last three quarters of 2008-09 has been reversed, with the segment posting a healthy 6.7% growth in the first two months of the current fiscal year. Similarly, the 4.7% and 3.8% growth registered by the basic goods sector in April and May were the highest since last September. As has been noted, government revenue expenditure, primarily via Pay Commission awards, came at the right time for durables, and the demand boost was impressive enough to lift activity in other sectors. But how long will this effect last? Not for very long, obviously.