Industry sets doubts at rest, grows 13.8% in July.

NEW DELHI: Growth in India's industrial output nearly doubled from a year-ago period to 13.8% in July on the back of a double-digit expansion in capital goods production. The figures released on Friday beat down fears of demand deceleration and lifted expectations of the economy notching an overall growth of over 8.5% but also reinforced the case for further monetary rightening by the RBI.

Coming after the slowdown scare sparked by lapses in calculating the first quarter GDP figures, the latest figures remove doubts over whether India's growth story was real or apprehensions that Asia's third largest economy may be pausing to catch its breath. No wonder, a buoyant finance minister Pranab Mukherjee saw an average industrial growth of 12-13% this financial year.

Government's think-tank, the Planning Commission, too said the economy could beat the Centre's overall growth projection of 8.5% for this fiscal, particularly in view of the stellar showing by the labour-intensive manufacturing sector. The latest Index of Industrial The Economic Times showed output of capital goods, used by the manufacturing industry, soared 63% from 1.7% a year ago.

But not everyone is feeling as buoyant. According to Crisil chief economist D K Joshi, the July figures may not sustain. "I don't see the IIP growth beyond 9% this fiscal. These high numbers are not sustainable.'' Economist Rajiv Kumar too feels it may be too early to revise the GDP figures upwards. "I expect that there will be slowdown in industrial activity in the coming months.'' The economy grew by 8.8% in the first quarter of this fiscal.

Other analysts said if demand does not grow in proportion to the robust growth of 63% in capital goods, it could lead to inventories piling up in future and reduction in manufacturing activities.

All eyes will now be on Tuesday's inflation data for cues on the RBI's next policy move. Headline inflation for August is due next week and analysts expect it to have eased to 9.6%, which would be its second consecutive month below double digits. Yet with food inflation accelerating for three consecutive weeks and signs of manufacturing capacity constraints, policymakers fear high food prices could spill over into the broader economy.

Overall, the manufacturing sector grew 15% in July against 7.4% a year ago. Consumer durable goods production was also up 22.1%, the same as in July 2009. But electricity generation grew at a slower 3.7% against 4.2% a year ago. In terms of specific industries, 12 out of 17 groups showed positive growth in the month under review.

The group of industries listed under `machinery and equipment other than transport equipment' has shown the highest growth of 49.9%, followed by 31.1% in other manufacturing industries and 24.9% in transport equipment and parts. But wood and wood products showed a negative growth of 9.4% followed by 2.1% in beverages, tobacco and related products.

The growth figures came about despite the government partially withdrawing stimulus by raising excise duty by 2% to 10% and rate hikes by the RBI. This gives relief to government statisticians and planners. Official data released last month had put economic growth in the April-June quarter, based on actual expansion without accounting for taxes, at 8.8%. But GDP growth at market price, which reflects the value of the production or services that includes indirect taxes, was just 3.65%.

Usually, the difference between the growth rate of GDP from the two methodologies is 2-3%. With the numbers creating confusion, the government quickly set the anomaly right by revising the GDP figure at market prices to 10.02% from 3.65% earlier.

Source : timesofindia.indiatimes.com