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India's Manufacturing Output Surges

The strong numbers provide evidence that recovery is underway, say Indian government and industry officials.

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India’s industrial recovery is well on track, with manufacturing output expected to expand by 7.5 percent to 8 percent in the current financial year ending March 31, 2010. The index for industrial production (IIP) grew 10.4 percent during August this year—highest in the last 22 months—over the corresponding month last year.

Triggering hopes that the worst might be over for the Indian economy, the strong August growth in India's industrial output was underpinned by strong expansion in mining and manufacturing. Manufacturing, which accounts for 80 percent of overall industrial output, did better than expected, growing by 10.2 per cent. But the real surprise was the consumer durables sector that grew by a healthy 22.3 per cent, the highest in more than five years, according to the data from the Central Statistical Organization.

Sure sign

“It (industrial growth) is a good sign and it is a process of recovery,” the finance minister Pranab Mukherjee said. “We are hoping that when the final figure for the second quarter (July-September)is available, there will perhaps be some higher growth,” he said. Economists and analysts said the August performance, especially the healthy double-digit growth in manufacturing output, was a sure sign that the economy has rebounded.

“I think that the industrial production number clearly indicates that industrial recovery is well on the way,” Prime Minister's Economic Advisory Committee Chairman C. Rangarajan stated. “I would expect the industrial output to grow 7.5 percent to 8 percent and the GDP (gross domestic product) to expand by 6 percent to 6.5 percent during the current financial year,” he said.

In a statement, the president of the Federation of Indian Chambers of Commerce and Industry, Harshpati Singhania, said, “The latest figures show that demand is growing in the economy.” He also maintained that it is critical that overall policy parameters and stimulus measures are not reversed at this point of time.According to Chandrajit Banerjee, director general, Confederation of Indian Industry (CII), it is important to nurture this economic recovery by continuing with the current fiscal and monetary space which has been given to industry to recover, especially during a year of poor monsoons that could impact agricultural growth. “CII hopes that the Reserve Bank of India (RBI) would give the welcome signal of an accommodative monetary policy when the half yearly review is done,” he added.

Domestic demand driver

Domestic demand continues to be the key driver of this recovery. Exports are still down, with orders from the two key growth regions—the United States and the European Union—remaining low. The collapse of the global financial system that plunged the West into recession last year took a heavy toll on Indian exports.

In fact, the manufacturing sector across Asia is showing signs of recovery, prompting policy makers to consider when they can begin to withdraw the monetary and fiscal stimulus initiated to protect their economies from the global recession. Factory output is improving across Asia as close to $1 trillion in government stimulus and record-low interest rates help the region lead the world economy out of the worst global recession since the 1930s.

In comparison, China’s industrial production rose 12.3 percent in August from a year earlier, the most in 11 months. Malaysian output fell the least in 10 months.

About the author

Uday Lal Pai,, is a freelance journalist based in India.

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