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The index of industrial production spurted by 8.8% in June, beating the street expectations by a wide margin and, ruling out for now at least, any reversal of the tight monetary policy the Reserve Bank of India has been pursuing to quell the inflationary feverraging in the economy.

In June 2010, the spurt was of the order of 7.4%.

On a month-on-month basis, the momentum in factory output seems upward, with the industrial index up by 5.8% in April and by 5.9% in May.

However, the average rate of increase during the first quarter of 2011-12 worked out to 6.8%, which represents a moderation of sorts compared with the similar average for the preceding year (9.6%).

The prime mover behind the very encouraging headline number of industrial growth during June 2011 was manufacturing which witnessed a double-digit leap of 10%; power generation also facilitated this better-than-expected showing by more than doubling its incremental growth to 7.9%.

In contrast, mining sector had proved to be a laggard, faring dismally with only a fractional improvement in output at 0.6% as compared to the year ago (6.9%).

The use-based analysis of the industrial index reveals a mixed picture for June. Despite the dear money policy stance, investment activity appears to be proceeding at a hectic pace; the production of capital goods has accelerated to 37.7% from 3.7% a year ago. Similarly, the trend in basic goods is flattering — the rise being 7.5% during the month from 3.7%, twelve months ago.

But, in respect of intermediate goods and consumer goods, a slow-down was in evidence during June 2011. Output was up by a mere 1.9% in intermediate goods as compared to 8.5% in the same month of the preceding fiscal year and in consumer goods by 1.6% as against 13.3%.

It is also clear that, now both the durables and the non-durables segments have reported a lower volume of output growth vis-a-vis June 2010.

At the 2-digit level of classification of the index of industrial production which has 22 industry groups, 7 have registered an absolute decline in output during June 2011 while 10 groups have reported a growth rate of at least 8%.

Among the industries that have fared very well are basic metals, fabricated metal products, electrical machinery & apparatus and motor vehicles, trailers and semi-trailers. Textiles and chemicals are among the industries that have shown a negative rate of growth.

Industrial performance during the first three months of 2011-12 is somewhat at variance with what was evident during June 2011. In manufacturing, the growth rate had slowed to 7.5% from 10.3% during the same quarter of the previous year and in mining to 1% from 8%.

However, electricity picked up pace to 8.2% from last year’s 5.4%. In respect of the use-based classification, both basic goods and capital goods had acquitted themselves creditably thus far this year but the performance of intermediate goods and consumer goods was rather lacklustre.

To summarise, of the 22 groups, five had negative growth rates during the first quarter while 10 showed an increase of 8% or more.

In this quarter, double-digit jump was seen in food products and beverages, basic metals and certain categories of capital goods among others, but textiles and wood & wood products were among those with a negative growth rate.

Interestingly, with the data for the first three months now available, it can be readily seen how urgent the industrial index with the new base, 2004-05 was.

In April 2011, the industrial growth rate was 5.8% in terms of the new base but lower at 4.4% if we use the index with the old base. In May, the growth was 5.9% as per the new base and 3.4% as per the old base; in June, the respective growth rates were 8.8% and 4.3%.

The average for the first quarter was 6.8% using 2004-05 as the base and 4.0% with 1993-94 serving as the base. In other words, the old index had consistently under-estimated the actual growth rates; the extent of the divergence shows how the old index has ceased to be a barometer of the trend in output in the industrial economy of the country.

With the new index in use, it can be inferred that the industry can - and must- achieve much higher growth rates but it is not doing as badly as we are led to believe even by informed segments of the public opinion.