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India's industrial production growth moderated to 4.4% (Base Year 1993-94) in April 2011 from upwardly revised 7.8% growth recorded in March 2011, showing the impact of high inflation and rising interest rates. The growth of the industrial production for April 2011 was impacted by continued volatility in the output of capital goods, while fall in the output of textiles and chemical products also weighed on industrial production during April 2011. The industrial production growth was also impacted due to negative base effect, but improved growth in the basic goods output helped to restrict further moderation in industrial output growth. The growth of industrial production for January 2011 and March 2011 has been revised upwards to 4.0% and 7.8%, compared to 3.9% and 7.3% growth reported earlier.
The growth of the industrial production was below the market expectations. As per Capital Market's poll of economists, the IIP was projected to grow at 5.7% for April 2011. The economists responding to the poll had forecasted the IIP growth in the range of 3.5% to 8.6% for April 2011. The median of various IIP growth forecasts stood at 5.7% for April 2011.
The Central Statistics Office has also released the data on Index of Industrial Production for April 2011 with new 2004-05 base, showing 6.3% growth in industrial output in April 2011 compared to 8.9% growth recorded during March 2011. The growth of the industrial production in April 2011 was the lowest in last 7 months, with previous low recorded at 6.1% in September 2010.
The growth of capital goods (with new 2004-05 base) eased slightly to 14.5% in April 2011 from 15.4% growth recorded in March 2011. The growth of consumer durable goods as well as consumer non-durable goods moderated sharply to 3.8% and 2.1%, respectively during April 2011 from 6.1% and 8.2% growth during March 2011. However, the output of intermediate goods increased 3.4% in April 2011 higher than 1.8% growth recorded during March 2011.
The growth of the mining sector (with new 2004-05 base) improved to 4 months high pace of 2.1% during April 2011, which was largely supported by 2.9% growth in the coal output and 11.0% surge in crude oil production. The growth of the electricity generation was lower at 6.5%, while the growth of manufacturing sector tumbled to 6.9% during April 2011. Out of 22 manufacturing industry groups, only 16 industry groups recorded positive growth in April 2011.
The number of items used for calculating the index of manufacturing sector has increased sharply from 301 items under old 1993-94 base to 397 items under new 2004-05 base. The CSO has also introduced number of new items, while replacing many old articles. The number of industry group under manufacturing has been raised to 22 industry groups from 17 industry groups earlier. However, the growth of the industrial production under new and old base widely varies due to change in weights, addition of new items etc.
On the one hand, the industrial production growth remains sluggish, and on the other, inflation remains higher than tolerable levels. So, RBI may not be aggressive in rate hikes, but is set to settle for baby steps of 25 basis points hike in repo rate in the ensuing monetary policy review. That the current fiscal is the ultimate year of the eleventh five year plan and has one more day (366 days) than the previous year should help improve the growth. Also, if only the South West Monsoons 2011 are good, then it will be second successive year of good monsoons. At the same time the agri commodity prices, globally and in India, remain elevated. So, two consecutive too good years with increase in production and prices should help accelerate rural consumption. Viewed in this perspective, if only there are no major global shocks, India is set to surprise with better than 8.0% growth in GDP in the current fiscal. These factors, coupled with better traction in capital goods sector together can take India's GDP growth beyond 8.0% in the current fiscal.
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