Industry remains in high growth orbit

Factory output, as mirrored in the index of industrial production, rose by an impressive 11.5% in May.

With a revised figure of 16.5% for April, the cumulative growth during the first two months of the current fiscal stood markedly higher at 14% than 1.6% during the same period of 2009-10.

This performance is in sharp contrast to the last fiscal when, during May and for the April-May period, the spurt in the industrial index was a dismal 2.1% and 1.6% respectively.

Though on a month-on-month basis, it would appear that there has been a deceleration of sorts in the growth momentum in May 2010 compared with the preceding month — for example, in manufacturing to 12.3% from 17.9%, in capital goods to 34.3% from 69.9% and in consumer durables to 23.7% from 32.8% — such a comparison would be misleading.

A year-on-year growth makes sense as there is still a considerable element of seasonality in our industrial production. Better still, would be to gauge the underlying trend based on the average rate of increase for the available period.

Consider the point-to-point data. In respect of manufacturing, the leap in production was phenomenal — to over 12% in May 2010 from 1.8% in May 2009.

Similar was the case in capital goods output which rose by as much as 34.3% in contrast to a decline of 3.6% last year; there was a surge of 23.7% in consumer durables production which was on top of a rise of 13.2% earlier.

In intermediate goods too, the growth rate was in double-digits and higher than what it was at this point.

A recovery was seen in consumer non-durables during the latest month, with growth rate in positive territory — 2.4% as against (-) 5.5%.

Overall, in terms of the classification of the index at the two-digit level, it is seen that, during May 2010, as many as eight industry groups out of the total of 17, had recorded a growth on eight% and more as compared to four a year ago while the number of industry groups that had shown a negative growth had dropped to two from eight.

An exceptionally good performance in May 2010 was evident in transport equipment & parts (25.2%), machinery & equipment (24.8%) and metal products (39.8%).

Other industries that had fared well included jute & related fibres (26.9%), leather (12.9%) and basic metals & alloys (9.4%). It is clear that there has been a good all-round performance by the industrial sector during the month.

Now, take the data for April and May together to ferret out the underlying behaviour of the industrial production index.

The average rise in the industrial index for these months works out to 14%. Among the three sectors, the output in mining had risen sharply to 10.2% from the previous year’s 3.4%, and in electricity to 6.6% from 4.8%.

But, in respect of manufacturing, the heavyweight in the index, the jump has been spectacular — to 15.1% from 1.1%.

According to the use-based classification, the average increase during April-May 2010 was the fastest in capital goods; here, the growth was a robust 50.9%.

A year ago, this segment had shown a decline in production to the tune of 4.7%.

In the consumer durables too, the momentum had gathered pace to 28.1% thus far this year, this comes on top of the high growth of 15.3% during April-May 2009.  Accompanied by an improved showing by the consumer non-durables, the consumer goods segment has achieved a turnaround during the current fiscal year.

The average rise in consumer goods output was 10%; this is in contrast to a decline of 2.9% during the same period of 2009-10.
In basic goods and intermediate goods too, the tempo had picked up during the on-going fiscal year.

In general, industry has acquitted itself creditably thus far. This is reflected, synoptically, in the fact that, during April-May 2010, 11 industry groups have reported an incremental growth of eight% and more; a year ago, this number was a mere four.

On the other hand, the number of industry groups with a negative growth had fallen to three from eight.

During the first two months of 2010-11, all the pivotal industries have maintained a heightened tempo of output. In transport equipment and part - a euphemism for automobile industry and its ancillaries - production was up by a hefty 29.1%,

In machinery & equipment, the increase was even higher at 38.9% while basic metals & alloys saw a jump of 10.1%.

A broad range of other industries too, had fared well on the production front. They included food products (14.9%), leather (9%), paper (8.6%), basic chemicals (8.2%) and rubber, plastic, petroleum and coal products (17.4%).