IIP growth raises hopes of recovery

 Industrial output grew the most in 22 months to 10.4 per cent in August, indicating a steady turnaround in the economy but also raising worries that the government and the central bank would roll back fiscal and monetary stimulus measures.

Output at factories, utilities and mines, which account for about 17 per cent of GDP, exceeded economists’ expectations of a 9.7 per cent increase and was significantly higher than 1.7 per cent in the same month last year, causing some analysts to attribute this year’s performance to the low base effect.

Most, however, also supported the official claim that the impressive IIP figures were due to the trickle-down effect of the government stimulus packages, though the strength of the private sector demand remained uncertain.

The central bank cut interest rates six times between October and April and the government reduced taxes on consumer products and imports, together providing a stimulus worth more than 12 per cent of India’s GDP.

 “The good IIP numbers are a result of stimulus packages. These numbers were anticipated,” said Ajay Shankar, secretary, department of industry policy and promotion.

Finance Minister Pranab Mukherjee termed it as a good sign of recovery. “We are hoping that when the final figure of second quarter will be available, there will be some higher growth so that we can make up even higher growth in the third and fourth quarters.” The economy grew 6.1 per cent in the first quarter of this year, exceeding most analysts’ expectation.

Expressing the possibility of sustained growth in industrial production from now on, Finance Secretary Ashok Chawla said, “We expect the trend to continue and expect better numbers in September.”

Reacting to the news, the Bombay Stock Exchange’s 30-share index rose 384 points or 2.31 per cent to close above the 17,000 mark.

BASE METTLE   April-

August August

(in %)

2007

2008

2009

10.40