Industry grows 17.6% in April

NEW DELHI: India's factory output bettered expectations to expand at 17.6% in April, marking a near 20-year high achieved on the back of copious domestic consumer demand, a revival in exports and higher infrastructure spending but also got boosted by a low base effect. While the best show by the manufacturing sector since December 2009 raised hopes of an 8.5% GDP growth rate in the ongoing fiscal, it also reinforced expectations of a further rate hike by the RBI next month.

The April figure is almost equal to the 20-year-high of 17.7% posted in December 2009. Manufacturing, which accounts for around 80% of the IIP (index of industrial production), expanded by 19.4% in April. Capital goods showed a growth of 72.8% and consumer durables by 37%. The expansion follows an annual 8.6% expansion in the economy in the quarter through March. But finance minister Pranab Mukherjee said he had expected the industry to do even better in April. "Of course, my appetite is infinite. I would have been happier if it was 20%," he told reporters.

Analysts said the strong industrial showing in April coupled with a normal monsoon would put the economy on an 8.5% growth trajectory in 2010-11. "The industrial growth can be equal to the growth rate last year and, therefore, taking that into account and if agriculture performs reasonably well during the year, one should hope to get a growth rate close to 8.5%," prime minister's Economic Advisory Council chairman C Rangarajan said.

The double-digit growth strengthened the case for stimulus rollback but Planning Commission deputy chairman Montek Singh Ahluwalia said the pace of monetary policy normalisation need not be quickened. This essentially reflects worries over Eurozone debt crisis and the health of the global economic recovery as well as concerns expressed by most other central banks in Asia.

India Inc too cautioned that the growth trend may moderate from June onwards since part of the industrial expansion could be attributed to a low base in April last year. Ficci secretary-general Amit Mitra said, "This trend of very high growth might moderate from June onwards because of the base effect." The low base is evident from the fact that capital goods had contracted by 5.9% in April 2009, even as consumer durables had risen by 17.6%.

Besides manufacturing, mining expanded by 11.4% in April against 3.4% a year ago. On the broad sectoral storyboard, electricity was a weak link as generation rose by 6% in April, lower than 6.7% a year ago. The robust economic growth is, however, also raising the prospects of capacity constraints that are seen aggravating price pressures.