India's factory output maintained its robust pace in March, growing by 13.5 per cent despite monetary tightening and a partial roll back of stimulus measures. Driven largely by manufacturing, this was the sixth straight month of double-digit expansion.
Industrial output, as measured by the Index of Industrial Production (IIP) for the financial year 2009-10, stood at 10.4 per cent as against 2.8 per cent in 2008-09.
Although output in March was lower than that in the previous month, policymakers and analysts are optimistic about the future.
"March IIP numbers are not going to impact the GDP (gross domestic product) growth estimates for 2010-11. We are hoping that we will close 2010-11 with double-digit factory output," said Montek Singh Ahluwalia, deputy chairman, Planning Commission.
Reserve Bank of India Deputy Governor Subir Gokarn said the rise in factory output was largely in line with the growth momentum. "Though IIP growth was lower than the previous months, it is largely consistent with our sense of growth momentum for the year," Gokarn told reporters on the sidelines of a conference here today.
Research and ratings agency Crisil India said although lower than its expectations, the reading for March was still robust. "The trend that is coming up is that industrial production will continue to be at a healthy level of 9-10 per cent going ahead, as the base effect wears down," said D K Joshi, principal economist with Crisil India.
Religare said industrial production is likely to slow further in coming months because of rising cost pressures and capacity constraints. Withdrawal of fiscal stimulus and rate hikes will also impact the growth.
"Firms in general have not been augmenting their capacities (and, hence, potential output) significantly, as private demand is still inching back to pre-crisis levels. However, some sectors have shown promising strength in demand, thereby exhausting capacities faster," Religare said in a report.
It said the April inflation number, due on Friday, would give a clearer perspective on any rate action by the Reserve Bank of India.
The data released today showed manufacturing grew by 14.3 per cent in March as against a negative growth of 0.3 per cent in the year-ago period. Manufacturing constitutes around 80 per cent of IIP.
Electricity and mining output grew at a rate of 11 per cent and 7.7 per cent, respectively, as compared with 1.9 per cent and 6.3 per cent.
In the use based category, basic goods grew at a rate 10.6 per cent, while capital goods and intermediate goods grew at 27.4 per cent and 12.7 per cent, respectively.
Consumer goods posted 10.6 per cent rise, while consumer non-durables grew by 32 per cent.
"The boost from fiscal stimulus and inventory adjustment has begun to wane in recent months, weighing on manufacturing production. However, while manufacturing and mining production have decelerated significantly since January, electricity production has picked up. The uptick in electrical output is a sign that growth is spreading to the broader economy," said Nikhilesh Bhattacharyya, Associate Economist, Moody's Analytics.
