In November, the IIP soared to an eleven-year high of 14.4 per cent as people bought more cars, mobiles, houses, and consumer durables.
MUMBAI: Cheers! India’s growth story has revived dramatically after showing a dip in October. In November, the index of industrial production (IIP) soared to an eleven-year high of 14.4 per cent as people bought more cars, mobiles, houses, and consumer durables.
With high salary growth spurring expenditure across sectors, consumption is booming; businessmen, responding to increasing demand for their goods, are investing even more in factories and industrial capacities, pushing demand up even higher.
If the momentum is sustained over the remaining four months of the financial year, the economy’s growth will rise above last year’s levels. “This year we expect the economy to grow by 8.6 per cent, up from 8.4 per cent last year,” says Gaurav Kapur, senior economist, ABN Amro Bank.
Cheers again! The markets have caught a whiff of another boom. On Friday, the Bombay Stock Exchange Sensex jumped 425 points, its fifth largest gain ever. Market mavens are not ruling out a surge to more than 15,000 by February-end. Strong third quarter results (October-December 2006) from Infosys and early birds like HDFC Bank have aided the sentiment.
“Corporate fundamentals look very strong and we are bullish on the markets in the short, medium, and long terms. But there will be bouts of interim volatility,” warns Kumar Nair, managing director, Transwarranty Finance, a Mumbai-based broker and merchant banker.
But there’s some bad news, too. The exuberance of the industrial sector and the markets is pushing up prices all around despite the drop in global crude oil prices. The inflation rate, as measured by the wholesale prices index, has risen to 5.58 per cent in the week to December 30, higher than the Reserve Bank of India’s tolerance limit of 5.50 per cent.
High growth and inflation will mean that interest rates will have to rise again - for companies, for home loan borrowers, and for car and personal loans. “I expect inflation to exceed 6 per cent this year.
The RBI will have to hike the repo and reverse repo rates [the rates through which the central bank injects and sucks out liquidity from banks] by 25 basis points (one quarter of 1%). It may even raise the bank rate, which is a medium-term signal on interest rates,” says Dr Rupa Rege Nitsure, senior economist, Bank of Baroda.
But even this has a plus, since depositors will see higher returns from bank deposits. Get set for a roller-coaster ride in 2007!
(Additional reporting by Joel Rebello & Vyas Mohan)
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