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Is industrial recovery sustainable?

business Updated: Dec 01, 2009 02:55 IST
HT Correspondent

Industrial output grew by 9.2 per cent in the second quarter (July to September) of this financial year confirming signs of rising domestic demand in India, but sustaining such high consumer spending remained a key challenge for policy makers.

Consumer durables’ production grew by a healthy 22.2 per cent in September, perhaps mirroring higher purchases of goods such as televisions and refrigerators, and growing consumer appetite.

Automobile sales have clocked robust sales since the last few months and grew by 15.6 per cent in October.

At this pace India’s industrial output is growing at the second fastest rate in the world, behind only to China’s 16.1 per cent growth in October.

Economists said sustaining high consumption levels were key to pitchfork the broader economy into a high growth trajectory.

“Private consumption contributed 5.6 percentage point to real GDP growth suggesting that a recovery in private demand is well underway,” said Sonal Varma of consulting and research firm Nomura.

There has been a sharp pick-up in private consumption, which rose 5.6 per cent against 1.6 per cent in the same quarter last year

“We expect a strong rebound in domestic demand. We look for private consumption to improve further, as auto sales and the non-durables component of index of industrial production suggest,” said Rahul Bajoria of Barclays Capital Research.

“We expect urban consumption to rebound due to better job prospects. Overall, the recovery is gaining momentum and conditions are in place for a more broad-based expansion in 2010,” said Varma.

Government consumption expenditure also rose by 27 per cent due to pay arrears of central government employees.