Industry looks up in April
The country's industrial sector grew 7 per cent through April, sharply up from 2.9 per cent growth in March, according to government data released on Thursday.business Updated: Jun 12, 2008 20:33 IST
The country's industrial sector grew 7 per cent through April, sharply up from 2.9 per cent growth in March, according to government data released on Thursday. Analysts, however, said that it was too early to suggest a recovery in industrial growth that has slowed down in recent months because of a spike inflation and a consequent rise in interest rates
“It has become more and more difficult to analyse the industrial production data on a monthly basis as there is huge amount of volatility,” said DK Joshi, Principal Economist with credit rating firm Crisil.
The growth of 7 per cent in April —the first month of the current fiscal year — is still a slump compared to 11.3 per cent expansion in industrial output seen in the same month a year earlier.
Business chambers also were cautious in reacting to the latest data.
"The figures for April are showing a distinct recovery of pace of the industrial sector, but it is too early to exactly know whether industrial sector growth has changed direction," Federation of Indian Chambers of Commerce and Industry (FICCI) said.
Making the outlook not so robust is the Reserve Bank of India's decision on Wednesday to hike the rate at which it lends to commercial banks in the short term. “Banks are likely to raise lending rates in the months to come, thus impacting credit off take and growth. We therefore expect Index of Industrial Production (IIP) to remain subdued during the months to come,” said Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet India.
Any further increase in lending rates to consumers could hurt sectors such as consumer durables, automobiles and housing, where sales are driven by availability of finance and are sensitive to interest rates.
Sampat said high interest rates have played a significant role in containing domestic demand, evident in the lower IIP growth figures. “The basic goods sector and the intermediate goods sector, which together hold a 60 per cent weight in the index, accounted for just 40 per cent of the growth in during April 2008”, he said.