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India Inc on Friday said the sharp rise in industrial output in May is a sign the economy is on the road to recovery and expects the rebound to sustain on the back of policy measures unveiled in the maiden budget of the Narendra Modi-led government.
"Rise in industrial production for the second month in a row provides a glimmer of hope that the economy could be bottoming out and recovery could be on the anvil. Going forward, we anticipate a rebound in industrial production as the reform-oriented and forward looking Budget would boost business confidence leading to turnaround of the investment cycle," CII Director General Chandrajit Banerjee said.
Showing signs of recovery, industrial production grew at 4.7% in May, the highest since October 2012, on account of improved performance of manufacturing, mining and power sectors and higher output of capital goods.
The output, as measured by the Index of Industrial Production (IIP), had contracted by 2.5% in the same month of last year.
"As growth is subdued in intermediate sector and capital goods growth also comes on a negative base, the manufacturing sector may take some more time to recover. We are hopeful that the measures announced in the budget would help the sector to revive fast," Ficci President Sidharth Birla said.
During the April-May period of the current fiscal, the IIP recorded a growth of 4%, as against contraction of 0.5% in the first two months of 2013-14.
Terming the rise in industrial output as a "good sign", Assocham President Rana Kapoor said: "I hope the trend continues. It will help GDP grow above 5.5% in the current fiscal. However, monsoon can be a dampener".
Manufacturing, which constitutes over 75% of the index, grew 4.8% in May, compared to decline in output by 3.2% a year ago. For April-May, the sector recorded a growth of 3.7%, compared to a contraction of 0.7% in the year-ago period.
"We believe IIP has the potential to attain high growth trajectory on implementation of recent reforms announced in the Budget. We look forward to strong industrial growth recovery in the coming times as the new government has provided its thought process on manufacturing sector," PHD Chamber Sharad Jaipuria said.
Overall, 16 of the 22 industry groups in manufacturing showed positive growth in May.