Factory output surges by 17.6% in April to near 20-year high

After last fiscal’s double-digit expansion, industrial production picked up more steam to grow by 17.6 per cent in April, boosting the prospects of achieving 8.5 per cent economic growth in 2010-11.

The increase in output was due to a robust showing by the manufacturing sector and a low-base effect, caused by the global economic slowdown.

Manufacturing, which accounts for around 80 per cent of the Index of Industrial Production (IIP), expanded by 19.4 per cent in April, with capital goods growing by 72.8 per cent and consumer durables by 37 per cent.

The April figure is almost equal to the 20-year-high output of 17.7 per cent achieved in December 2009.

Analysts say that the strong uptick in April, coupled with a normal monsoon, would help the economy grow by an estimated 8.5 per cent in 2010-11.

However, Finance Minister Pranab Mukherjee said he expected the industry to do even better in April.

“Of course, my appetite is infinite. I would have been happier if it was 20 per cent,” he told reporters.

While the double-digit growth has strengthened the case for stimulus rollback, Planning Commission Deputy Chairman Montek Singh Ahluwalia cautioned that withdrawal should not be quickened.

“I don’t think it (stimulus withdrawal) needs to be quickened,” he said.

India Inc also cautioned that the trend may moderate from June onwards since part of the industrial expansion could be attributed to a low base in April last year.

“This trend of very high growth might moderate from June onwards because of the base effect,” Ficci Secretary General Amit Mitra said.

In fact, the low base is quite evident as capital goods had contracted by 5.9 per cent in April 2009, even as consumer durables had risen by 17.6 per cent.

Crisil chief economist D K Joshi said a one-off rise in IIP numbers would not prompt the RBI to further tighten money supply, especially when the fear of contagion of debt crisis in eurozone is growing.

Production of consumer non-durables grew by 6.6 per cent, a 10.5 per cent fall from April 2009.

Besides manufacturing, mining expanded by 11.4 per cent in April against 3.4 per cent a year ago.

On broad sectoral story, electricity was a weak link as generation rose by six per cent in April, lower than 6.7 per cent a year ago.

Of the 17 industries, only two, beverages, tobacco and related products and  wood and wood products, posted negative growth in April.

The processed food sector, which has been on a decline for quite some time, rose by 22.9 per cent in the month. The rise could fuel prices of food items like flour even further.

Output of machinery and equipment other than transport expanded by 55.6 per cent, while metal products and parts grew by 51.9 per cent.

April growth was in line with upbeat industrial growth of the previous seven months, when output expanded by double digits.

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