India?s industrial output, which accounts for about a fifth of its GDP, has bounced back from the dismal growth of 1.3% (now revised to 1.4%) in August?the lowest in a decade?to register a 4.8% growth in September. But the manufacturing sector, that comprises comprises 80% of the Index of Industrial Production (IIP), grew only by 4.8% as opposed to 7.4% in September 2007.
Finance minister P Chidambaram said, ?After the poor results reported for the month of August 2008, the quick estimates of IIP for September 2008 are more encouraging.? The finance minister, however, maintained that the data collection for IIP must be improved and made more relevant. Commerce and industry minister Kamal Nath and Chidambaram had both questioned the credibility of the IIP data, when the shocking August numbers came out. Worryingly, IIP growth in April-September was 4.9% this fiscal as against 9.5% in the same period a year ago. Aiming to highlight the silver linings to the slowing growth, the finance minister pointed to the impressive 18.8% growth in the capital goods sector in September as against 20.9% in September 2007 as well as the 5.6% growth in consumer goods from (-)0.2% in September 2007. Chidambaram also drew attention to the growth in mining in September to 5.7% from 4.9% in September 2007. He also said electricity generation has increased by 4.4% as against 4.5% in September 2007.
The official data released by the Central Statistical Organisation shows that as many as nine of the seventeen industry groups saw positive growth in September 2008 as compared to the corresponding month of the previous year.
The marginally better industrial output did little to cheer market sentiment, though. The rupee plunged 2.4% on Wednesday to record its biggest single-day percentage fall since February 5, 1996. 10-year bond yields went up to 7.68% from 7.66% just prior to the release of IIP data. The stock market bellwether, Sensex lost ground for the second day running, falling by over 300 points.
Experts blame the fall in the industrial output in this fiscal so far on the global financial crisis and said government should carry out more fiscal and monetary measures to boost it in the coming months by taking into account the liquidity crunch and easing of inflation.
Saumitra Chaudhuri, member of Prime Minister?s Economic Advisory Council (PMEAC), expects the Reserve Bank of India to cut its benchmark rates soon as the concerns of rising inflation has eased a bit.
