Dec 122012
 

Surprise 8.2% rise in factory output

“Let’s see what the next four months bring us. Investments are taking place, capacity is being created and consumption is happening in consumer durables and non-durables,” the finance minister said.

The author has posted comments on this articleTNN | Dec 13, 2012, 12.40AM IST

NEW DELHI: A sharp rebound in the manufacturing sector pushed the country industrial output growth to its highest in more than a year in October, indicating that the slowdown may have bottomed out.

Data released by the Central Statistics Office (CSO) on Wednesday showed industrial output rose unexpectedly by 8.2% in October compared to a decline of 5% in the same month a year earlier. The CSO revised the September data to show a decline of 0.7% from the previous reading of a 0.4% fall.

Economists said the sudden surge was largely due to a statistical base effect and some improvement in segments such as capital goods, consumer durables and non-durables.

Policy makers cheered the robust factory data with finance minister P Chidambaram saying it indicated the emergence of green shoots of economic recovery. “I am very encouraged by the indications of the green shoots in economy in terms of production. IIP figures are very encouraging,” he told reporters.

“Let’s see what the next four months bring us. Investments are taking place, capacity is being created and consumption is happening in consumer durables and non-durables,” the finance minister said, adding that growth of 7.5% in capital goods output “is very encouraging”.

But economists said it was too early to predict whether the October level of growth will be sustained. “As the current industrial slowdown is both well-entrenched and broad-based, it will take a while for industrial growth to recover,” ratings agency Crisil said in a note.

“Therefore, we expect industrial output growth to remain at muted levels during the remaining months of this fiscal year,” it added.

Industrial output data has remained volatile for several months, particularly the capital goods segment, making it difficult to spot a trend. The industrial sector has also been hit hard by high interest rates, input costs and slowdown in demand.

The manufacturing sector, which accounts for nearly 75% of the index of industrial production, rose 9.6% in October compared to a 6% decline in the same year-ago period. The improvement in the manufacturing sector is in line with other data such as the Purchasing Managers’ Index which has shown a rebound in the segment thanks to new orders.

The data showed that consumer goods, durables and non-durables also staged a smart rebound with all the segments posting double-digit expansion. The capital goods sector, which is a key gauge of economic activity, rose 7.5% in October compared to a fall of 26.5% in the year-ago period. This is the first time since April that the data for this segment has moved to positive territory.

The factory output data to some extent dashes hopes of an immediate interest rate cut as the Reserve Bank of India (RBI) would want to wait and see whether this is a sustained recovery. Retail inflation data also released on Wednesday showed inflation as measured by the consumer price index still hovering around double digits on the back of stubbornly high food prices.

Several economists expect growth to pick up in early 2013 as the impact of economic reforms and easy monetary policy kick in.