The capital goods sector is bucking the overall industrial slowdown. It has grown by an impressive 5.6% for the month of June, despite a massive 23% growth recorded in the same month last year.
The performance of the sector means that despite the low overall index of industrial production (IIP)?5.4% for June, year-on-year?the economy?s growth momentum continues. The index for the industrial sector in the first quarter of the year slipped to 5.2%.
Along with the capital goods sector, the consumer goods sector has also seen a robust performance. The index for June, released on Tuesday by the ministry of commerce & industry, recorded a 10% increase year-on-year, which has pushed the first quarter consumer spend to 8.5%. This is better than the performance of the consumer goods sector a month earlier in May 2008, when the overall consumer goods sector showed a growth rate of 7.2%.
The figures therefore show that the industrial slowdown is more pronounced in the mining and electricity sectors than in manufacturing. While manufacturing recorded a growth rate of 5.9% for June and a 5.6% rate overall, mining has slipped to 2.9% and 4.7%, respectively. Electricity production has also been just 2.6% in June, and just 2% for the quarter. ?These are not reflective of demand conditions, and are more influenced by supply and administrative bottlenecks,? said Saugata Bhattacharya of Axis Bank.
The first-quarter IIP figures do not demonstrate a clear easing of demand for credit from industry and could prompt the Reserve Bank of India to consider more options to cool off inflation concerns. This is particularly reflected in the consumer goods sector where consumer durables recorded a 12.2% rise for June and a 10.1% rise for the quarter, showing very strong demand conditions. The upturn is also being driven by demand from rural India, where a bumper rabi crop has fuelled demand among households.
The figures will also be incorporated in the first estimate of GDP for the year 2008-09 to be released by the government this month. On the basis of the present trends, the GDP growth rate could hover at below 8% for the year, reiterating the latest RBI estimate.
Among individual industries, the highest growth segments have been from textiles, chemicals and transport equipment. The first two sectors are highly export-dependent and this is good news for exports in general. But whether this will, in turn, ensure a partial reversal in the value of the rupee will take time to unfold. Ten of the 17 industry groups have recorded positive growth in June, compared with the trends for May 2008.
Of the six core sectors, cement output increased in June. These six sectors are mostly embedded in the basic goods segment of the IIP, accounting thereby for the low growth rate. Basic goods recorded a growth rate of only 2.9% for the month and 3.3% overall. The government has also revised the IIP manufacturing data for March, nudging it up from 3.9% to 5.5%, as well as the first round for May.