13.1.10

Factory output rose 12% y-o-y in November



India’s factory output expanded 11.7% in November year-on-year, marking the fastest growth in two years and strengthening the debate whether it is time for the government to start pulling back the stimulus package and the RBI to tighten purse strings. This is the 11th consecutive month that manufacturing has been growing. In November 2008, industrial output had expanded just 2.5%. The November 2009 growth is the highest since October 2007 when industry had expanded 12.2%. The latest growth figure far exceeds South Korea’s 1.4% but fell much short of China’s 19.2%. The spurt in consumer durables output continued, expanding at a scorching pace of 37.3% year-on-year in November. Manufacturing activities increased 12.7%, mining output was up 10% and electricity generation went up 3.3%. The growth is being driven by a revival in retail demand in the wake of interest rate cuts and tax breaks during the global slowdown. Payment of a second instalment of salary arrears aggregating Rs 1,800 crore to Central government employees in October also helped push demand for consumer durables. As an indicator, car sales in December rose over 40% year-on-year. The economy had posted an annual 7.9% growth rate in the second quarter, the fastest in 18 months. This prompted the government to raise the growth forecast for the current fiscal year to around 8% from 7%. But rising food prices have cast a shadow, with annual food inflation hovering over 18% in the last several weeks on supply shortages. The annual wholesale price inflation is also being seen in excess of 7.31% in December against 4.78% in November. The robust growth with rising inflation has strengthened the case for the RBI to tighten monetary policy to avoid inflationary pressures on overall economy. The RBI is widely expected to increase the cash reserve ratio, the level of deposits that banks must keep with it as cash. There is a debate on whether the government should start pulling back some of the stimulus measures. Many economists warn the growth may stumble if the stimulus is withdrawn now.

No comments: