Industrial output for June 2009 is a bright spot amidst the gloom, caused by a near certain drought and a swine flu outbreak in the country. The index of industrial production (IIP) for June 2009 has increased by 7.8% over the same period last year. There was a partial base effect, as mining grew by 15% compared to a 0.1% growth in June 2008 and electricity grew by 8% compared to 2.6%.
But manufacturing grew by a solid 7.3% over a 6.1% growth in the corresponding previous period. Manufacturing growth has been one of the concerns, particularly with capital goods’ output not reviving. In recent months, there had been some evidence of growth visible in the basic and intermediate sectors. A revival in commodity prices across the board has seen companies, which had earlier cut back on production, begin to step up output. June 2009 seems to indicate that the revival is spreading to other industries as well.
It seems that a combination of enough liquidity, reasonably low interest rates (though they can fall further), incentives in the form of stimulus packages and liberal norms for bad banking assets are all doing their work. Both June and July have seen automobile sales pick up smartly and there is some evidence that commercial vehicle sales too are picking up speed.
IIP data shows that among industries, capital goods have recovered smartly, with an 11.8% growth in June 2009. Basic goods and intermediate goods continue to do well, with growth rates of 10.1% and 7.9% respectively, with the base playing a partial role, as growth was around 2% last year. Consumer durables have done extremely well, partly due to the inclusion of two-wheelers in this segment. New launches from majors like Bajaj Auto and Hero Honda have led to a spurt in sales. Consumer non-durables is naturally under pressure, as rising food prices would be affecting consumption for the lower income groups. Growth was 0.3%, with a caveat of a high base effect as June 2008 growth was nearly 12%.
Among industries with a relatively high weightage in the index, basic alloy and metals and machinery were the star performers, and among ones with smaller weights, were textiles, paper, wood, leather and ‘other manufacturing industries’.
But the stock markets chose to show solidarity with global markets today (what happened to decoupling) and the BSE Sensex was down 250 points at 2.00pm.