India industrial growth hit a five-year high

Buoyed by strong festive demand, industrial growth hit a five-year high of 9.8% during October as the manufacturing sector clocked a double-digit rise. But economists warned that too much should not be read into a month’s data.

The sharp rise in index of industrial production was propelled by manufacturing, which grew 10.6% in October, data released on Friday showed.Employees work inside a steel factory in Agartala

While mining activity saw a marginal pick-up, there was strong growth in electricity too. Industrial activity had contracted by 2.7% during October 2014 and was estimated to have grown by just 3.8% in September, 2015.

Although economists said the higher-than-expected sho wing was on account of a low base, the data is in line with trends from the second quarter GDP data, which had estimated that the manufacturing sector grew by 9.3%.Consumer durables clocked 42.2% growth. Strong industrial growth in October beat analyst estimates and augurs well for the economy and job creation. Consumer durables, evident from auto sales data that were released last month, emerged as a star, clocking 42.2% growth, compared to 35% contraction in October 2014. There was also a strong performance from consumer goods (18.4%) and capital goods (16.1%). In recent months, there has been a revival in the capital goods segment which indicates that the overall industrial activity may be more robust as machinery and equipment will be used for further production in factories and plants.

While there was reason to cheer for the government, there was also a word of caution. “The latest October IIP is very good. It’s a high number, good number and encouraging number. But one has to be a little bit careful in interpreting this number… especially this month as there is a Diwali effect,“ chief economic advisor Arvind Subramanian told reporters.

Economists too warned that it may a little early to celebrate. “The moderate 4.8% industrial growth in April-October 2015 (compared to 2.2% a year ago), lends support to the view that a narrow economic recovery is underway . The spike in industrial growth is likely to be a short-lived statistical aberration. With a reversal of the base effect, we expect a substantial moderation in IIP growth in November 2015, in line with the trend recorded by automobile production… Additionally, a sharp slowdown in growth of thermal electricity generation is expected to weigh upon the performance of the IIP in November 2015.

Source: Times of India 12 Dec’2015