The country?s industrial output grew at a scorching pace of 13.76% in July, beating market estimates by a wide margin and more than doubling from revised 5.8% in June.
However, the pleasant surprise has failed to cheer the Reserve Bank of India, which remains worried over growth prospects, say economists and analysts.
Analysts believe July?s Index of Industrial Production number may be deceptive as growth in some key sectors in the index remains stagnant. In the month, capital goods rose a meagre 0.8% sequentially.
In fact, production growth in the sector slowed to an 18-month low of 4.1% on a three monthly seasonally adjusted annual rate basis compared with peak of 22.2% in August 2009, Barclays Capital said.
Fast-moving consumer goods companies, or consumer non-durables, have also underperformed broader industry, reflecting weak recovery in private consumption. Plus, slower growth in commercial vehicles and intermediate goods indicates that going forward, industrial growth will probably moderate.
?We expect industrial growth to moderate in the coming months and maintain our 8.4% (gross domestic product growth) estimate for 2010-11 (April-March),? said Citigroup economists Rohini Malkani and Anushka Shah in a note.
Growth not broad based
Clearly, domestic growth isn?t broad based and remains erratic with only a few sectors still providing the momentum. RBI, too, in its past policy documents, has been emphasising the absence of broad-based growth.
?I would expect it (industrial growth) to taper from the month of December because that is when the base year effect would come into play,? said Madan Sabnavis, chief economist at Care Ratings.
Global worries
Adding to erratic domestic growth is continuing worries over global economic recovery, which remains tentative. Although signals are mixed, fears of double-dip recession haven?t eased enough for investors? risk appetite to rise. Lead indicators in the US and other developed economies continue to signal moderation.
Organisation for Economic Cooperation and Development said growth in its 33-member countries may have peaked in July as economic output showed signs of slowing in countries such as China and the UK, among others. OECD?s leading indicators suggests the world economy is slowing as European governments cut budget deficit and rising unemployment curbs spending in the world?s biggest economy.
?We expect RBI to highlight global growth risks as an impediment to faster normalisation, and it is likely to signal it will pause at the November quarterly policy review,? Barclays said.