Industrial growth jumps 8.6% in Feb

The Index of Industrial Production (IIP) rose 8.6% in February 2008, with capital goods growth rebounding to double-digit levels after falling to an inexplicable low of 2.1% in January, and consumer durables climbing out of negative territory. This comes as good news, as the IIP growth rate had dipped to 5.8% in January from 7.7% in December. Industrial growth at 8.6% in February 2008 is still lower than the 11% achieved in February 2007.

Capital goods growth, which, by falling to 2.1% in January, 2007-08, is back in double digit at 10.4% in February 2007-08. However, it is lower than 18% witnessed in February 2006-07. The story in consumer durable sector, which includes automobile and white goods, has also bettered. From a negative 3.1% in January, the growth in consumer durables sector bounced back with 3.3% growth in February 2007-08, and is near double of 1.8% in February 2006-07. The consumer non-durable sector, comprising largely FMCG products, grew by a whopping 11% in February 2007-08 compared with 9.3% in the same month in 2006-07. The sector’s performance is expected to better with customs duty cuts in edible oils and excise duty cuts in the budget start playing on the demand.

Basic goods and intermediate goods grew by 7.3% (10.7%) and 8.2% (13.3%), respectively, in the month under consideration. Manufacturing, which occupies the highest weightage of about 80% in the Index of Industrial Production, grew at 8.6% against 12% in February, 2007, much higher than 5.9% in January. In February, electricity generation grew by 9.8% from a low of 3.3% a year-ago while mining output managed to maintain the growth rate of 7.5% in February 2007-08. Mining and electricity had dropped to 1.8% and 3.3% in January 2007-08. As many as 15 out of the 17 industry groups showed positive growth in February 2007-08.

The February number reaffirms the belief that India’s growth story is very much on track. Although growth is a tad lower compared with previous months due to high base effect, cumulative growth for the April-December period indicates that investment-led growth is very much intact.