Industrial output recovers to 2.7%

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New Delhi: The country’s industrial output recovered to 2.7% year on year in May, the highest since the global crisis hit the Indian economy in September last year. The figures released on Friday prompted the government to claim that the economy was bouncing back.

Commenting on the figures, finance secretary Ashok Chawla said, “This is what we were expecting, what we have been saying for some time now and except for capital goods and non-consumer durables, the rest are certainly looking much better. I think we are back on track, as was expected."

The monthly index of industrial production (IIP) clocked more than double the 1.2% it posted in April 2009 on the back of consumer spending. The recovery was, therefore, particularly significant in the manufacturing sector, which accounts for 80% of the index, where growth rose from just 0.4% in April to 2.5% in May. Though growth slowed marginally in mining and electricity, the rates posted remained higher than overall industrial growth.

Sounding a note of caution, however, Planning Commission deputy chairman Montek Singh Ahluwalia said though the worst of the economic crisis is over, returning to robust growth would take more time. “The real question is, how rapidly we resume growth," he said. The finance ministry’s Budget estimates for GDP growth this fiscal is 7%.

"A rise in domestic activity has likely helped to offset external weakness and arrested the downward trend in industrial production," said Sherman Chan, an economist with Moody's Economy.com.

Stock markets also came off the day’s low after the better-than-expected industrial production results. But it did not hold on and the benchmark Sensex of the BSE ended the day losing 253.24 points to close at 13,504.22. The output trend shows that the number of industries showing positive growth has averaged ten in the first two months of the current year, against just six in the last quarter of 2008-09.

The heartening performance was led by a rise in consumer durable goods where growth went up to double digits in the last two months, reaching 12.4% in May. But the overall impact of the improvement in consumer spending was muted by a fall in the output of consumer non-durables, where output contracted for the fourth consecutive month.