Industrial production grows by 11% in the first quarter of current fiscal
The Index of Industrial Production (IIP) numbers for June 2007 indicate a persistence of the somewhat unbalanced pattern of growth that was evident in the numbers for the first two months of this fiscal year. The overall index grew by 9.8 per cent over the corresponding month of last year, somewhat slower than during April and May, both of which showed double-digit growth; but growth during the quarter clocked in at 11 per cent, which is still quite respectable.
As in April and May, it is the significant variation in growth across industries that is a primary feature of the numbers and raises questions about momentum and sustainability. In both April and May, by far the fastest growing industry was wood and wood products, not at all significant in the overall basket but contributing disproportionately to the growth during the quarter. June was a third spectacular month for this industry - it grew by over 103 per cent over June 2006 and by over 104 per cent during the quarter. One could imagine that all the real estate that has been developed in recent months, be it residential or commercial, needs to be decorated and furnished, leading to a surge in demand for the products of this industry, but, even then the numbers are staggering. The other industry which performed exceedingly well is food products. Though it moderated considerably during June, growing at only 1.3 per cent, it notched a growth rate of over 27 per cent during the quarter. This was on the back of 55 per cent growth during April. If it hadn't been for these two industries accelerating so sharply, overall growth would have been far less buoyant.
By contrast, several major industries were relatively sluggish during the quarter. Metal products, for example, declined by almost 8 per cent during June; as a result, this sub-sector grew by barely 1 per cent over the quarter. Transport equipment, which has not been having a particularly good time, grew by 0.8 per cent during June and less than 2 per cent during the quarter. Paper, chemicals and non-metallic minerals were some of the other relatively slow-growing segments during the quarter. The one major industry which has sustained its momentum and also points to enduring optimism about the medium term, is machinery and equipment, which grew at over 18 per cent during June and over 19 per cent during the quarter. However, as the economic advisory council to the Prime Minister has pointed out, rapid growth driven more by an investment boom can be halted more quickly than if led by a consumption boom. In that sense, it is the capital goods sub-sector that needs to be watched closely for any change of tempo.
Over the past three months, it seems quite clear that the broad-based momentum that had been visible over the last couple of years has now subsided. Certain industries are doing very well, presumably driven by micro-economic factors, while some important ones which are more closely associated with macro-economic cycles are showing distinct signs of flagging. The latter appears consistent with the overall impression that the first-quarter corporate results created; the first signs of a plateau after several quarters of escalation. None of this should be surprising. After several interest rate hikes and liquidity control measures as well as the sharp appreciation in the rupee, a slowdown of some magnitude was inevitable. The only question is one of degree.
As in April and May, it is the significant variation in growth across industries that is a primary feature of the numbers and raises questions about momentum and sustainability. In both April and May, by far the fastest growing industry was wood and wood products, not at all significant in the overall basket but contributing disproportionately to the growth during the quarter. June was a third spectacular month for this industry - it grew by over 103 per cent over June 2006 and by over 104 per cent during the quarter. One could imagine that all the real estate that has been developed in recent months, be it residential or commercial, needs to be decorated and furnished, leading to a surge in demand for the products of this industry, but, even then the numbers are staggering. The other industry which performed exceedingly well is food products. Though it moderated considerably during June, growing at only 1.3 per cent, it notched a growth rate of over 27 per cent during the quarter. This was on the back of 55 per cent growth during April. If it hadn't been for these two industries accelerating so sharply, overall growth would have been far less buoyant.By contrast, several major industries were relatively sluggish during the quarter. Metal products, for example, declined by almost 8 per cent during June; as a result, this sub-sector grew by barely 1 per cent over the quarter. Transport equipment, which has not been having a particularly good time, grew by 0.8 per cent during June and less than 2 per cent during the quarter. Paper, chemicals and non-metallic minerals were some of the other relatively slow-growing segments during the quarter. The one major industry which has sustained its momentum and also points to enduring optimism about the medium term, is machinery and equipment, which grew at over 18 per cent during June and over 19 per cent during the quarter. However, as the economic advisory council to the Prime Minister has pointed out, rapid growth driven more by an investment boom can be halted more quickly than if led by a consumption boom. In that sense, it is the capital goods sub-sector that needs to be watched closely for any change of tempo.
Over the past three months, it seems quite clear that the broad-based momentum that had been visible over the last couple of years has now subsided. Certain industries are doing very well, presumably driven by micro-economic factors, while some important ones which are more closely associated with macro-economic cycles are showing distinct signs of flagging. The latter appears consistent with the overall impression that the first-quarter corporate results created; the first signs of a plateau after several quarters of escalation. None of this should be surprising. After several interest rate hikes and liquidity control measures as well as the sharp appreciation in the rupee, a slowdown of some magnitude was inevitable. The only question is one of degree.
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