IIP Grows 17.6%

India’s factory output bettered expectations to expand at 17.6% in April, marking a near 20-year high achieved on the back of a growing domestic consumer demand, a revival in exports and higher infrastructure spending. The low base effect also boosted the growth numbers. While the best show by the manufacturing sector since December 2009 raised hopes of an 8.5% GDP growth rate in the ongoing fiscal, it also reinforced expectations of a further rate hike by the RBI next month. The April figure is almost equal to the 20-year-high of 17.7% posted in December 2009. Manufacturing, which accounts for around 80% of the IIP (index of industrial production), expanded by 19.4% in April. Capital goods showed a growth of 72.8% and consumer durables by 37%. The expansion follows an annual 8.6% expansion in the economy in the quarter through March. But finance minister Pranab Mukherjee said he had expected the industry to do even better in April. “Of course, my appetite is infinite. I would have been happier if it was 20%,’’ he told reporters. Analysts said the strong industrial showing in April coupled with a normal monsoon would put the economy on an 8.5% growth trajectory in 2010-11. The double-digit growth strengthened the case for stimulus rollback but Planning Commission deputy chairman Montek Singh Ahluwalia said the pace of monetary policy normalisation need not be quickened. This essentially reflects worries over the Eurozone debt crisis and the health of the global economic recovery as well as concerns expressed by most central banks in Asia. India Inc too cautioned that the growth trend may moderate from June onwards since part of the industrial expansion could be attributed to a low base in April last year. Besides manufacturing, mining expanded by 11.4% in April against 3.4% a year ago. On the broad sectoral storyboard, electricity was a weak link as generation rose by 6% in April, lower than 6.7% a year ago. The robust economic growth is, however, also raising the prospects of capacity constraints that are seen aggravating price pressures.