What goes up must stay up
Factory output in April rose the fastest in 20 years, setting India Inc off to a great start for the financial year. The 17.6 per cent growth in industrial production underlines the speed of the Indian recovery, with manufacturing growing at 19.4 per cent fed by an eye-popping 72.8 per cent rise in capital goods.india Updated: Jun 14, 2010 00:52 IST
Factory output in April rose the fastest in 20 years, setting India Inc off to a great start for the financial year. The 17.6 per cent growth in industrial production underlines the speed of the Indian recovery, with manufacturing growing at 19.4 per cent fed by an eye-popping 72.8 per cent rise in capital goods. The numbers, of course, flatter to deceive. Industry had virtually come to a standstill last April with manufacturing output climbing a measly 0.4 per cent and capital goods actually shrinking by 5.9 per cent. Nevertheless, the latest figures confirm that the Indian consumer is buying with a vengeance: consumer durables grew at 37 per cent, up from 17.6 per cent last April; and consumer non-durables, which had been anaemic for most of the previous 12 months, grew by a creditable 6.6 per cent, up from a 10.5 per cent decline in April 2009 and at double the pace of March 2010.
There is an extra bit of cheer to be drawn from the phenomenal surge in capital goods. At the beginning of the financial year this would seem to suggest that investment plans put on hold in the aftermath of the global liquidity crisis are back on stream. That bodes well for overall demand, investment being the biggest component after consumption, and one that takes its cues from the people’s spending patterns. The long tail of the government’s stimulus package is still on display here with heightened infrastructure spending creating an appetite for capital goods, but corporate India’s capacity building plan, too, seems to have found its feet despite the withdrawal of tax giveaways and income transfers.
The government can look back on its handling of the economy during the crisis with a degree of satisfaction. That national income grew 7.4 per cent in 2009-10 owes itself in large measure to an industrial revival in which manufacturing output grew by 10.8 per cent, helped by handouts that cost the government 3.5 per cent of the GDP in 2008-09. The tricky bit now is to keep this growth momentum alive while winding down the huge debt the government has piled up in the immediate crisis period. Elation over output numbers will be short-lived as the low base effect begins to wear off in a couple of months. The government has a roadmap on fiscal correction laid out by the 13th Finance Commission; it must display the political will to adhere to these targets.