The October rebound, as registered by the Index of Industrial Production (IIP) at the start of the fiscal?s third quarter, spells more than just momentary relief from a slump. The index?s growth for the month, at 11.8%, marks a seven-month high alright. But it also hints at a recovery in industrial demand that is extensive enough to make the year?s last two quarters more exciting than had been supposed earlier. For one, this is a story of both domestic and external demand moving up in tandem. For another, while corporate India may have had to resort to ?other income? measures to overcome the FY08 pain of a higher interest burden and thus keep its performance indicators ticking, it can take heart from the fact that the recovery is well grounded in the larger macro economic format. Within India, the prime mover has been production of consumer non-durables, or items of daily consumption. Demand has picked up on account of a better-than-expected kharif crop, and that, too, one to have hit the market at prices high enough to boost rural incomes. The big turnaround, though, has been in durables. After five consecutive months of decline, growth has shot up to double-digit levels. This may have been in anticipation of festive season demand, but it indicates a recovery from the consumer market slump all the same. Consumer goods are contributing to overall industrial growth again, and enhanced marketing efforts could convert this from a datapoint (or blip suspect) into a trend.
Is the industrial resurgence sustainable on the whole, too? Given that exports have also notched up a good performance in October, and the vulnerability to a possible US slowdown tends to be exaggerated even in non-software sectors, there is reason for some optimism in the immediate term. Yet, looking ahead, there are risks. If gloom waves from the US reach Indian shores without an easing of monetary policy here to keep interest differentials in line with US Fed rate cuts, the industrial bounceback could be jeopardised. Thankfully, there are few supply constraints on industrial growth, given the continued buoyancy in investment demand and associated boom in the output of capital goods. This makes the industrial sector more responsive to shifts in economic conditions. If only the core sector, especially power, would cease to be such a worry.
