So far so good...but will it get better or worse?

As expected, industrial output recovered somewhat in September from a sharp slowdown in August, as manufacturers stepped up production ahead of Diwali, bringing some relief to policymakers, companies and financial markets. The index of industrial production (IIP) stood at 273.0 in September as against 260.5 in the same month last year. This translates into a growth rate of 4.8% as against 6.9% recorded in the same month last year, the Central Statistical Organization (CSO) said. IIP growth for September was expected to come in at 4-5%. Meanwhile, the Government revised August's industrial production to 1.4% from a provisional estimate of 1.3%. The cumulative growth in IIP for the period April-September 2008-09 stands at 4.9% versus 9.5% in the corresponding period of the pervious fiscal year. In terms of IIP's constituents, the manufacturing sector, which has a weight of over 75%, grew by 4.8% versus 7.4% in September last year. In August, manufacturing growth had slumped to 1.4%. Mining and Electricity expanded by 5.7% and 4.4%, respectively in September compared to 4.9% and 4.5%, respectively. In August, growth rate in these two components of the IIP stood at 2.7% and 0.8%, respectively.

As many as nine out of the 17 industry groups showed positive growth during September compared to the corresponding month of the previous fiscal year. Basic Goods, Capital Goods and Intermediate Goods grew by 4.6%, 18.8% and -3.3%, respectively in September as against 6.5%, 20.9% and 10.1%, respectively in the same month last year. Consumer Durables and Consumer Non-durables recorded a growth rate of 13.1% and 2.8%, respectively, with the overall growth in Consumer Goods being 5.6%. In September 2007, they had a growth rate of -7.3%, 2.6% and -0.2%, respectively.

Finance Minister P. Chidambaram welcomed the improvement in September IIP numbers, calling it more encouraging. "I say this even while I maintain that data collection must be improved and made more relevant, contemporary and universal," he added. But, economists warned that the rebound in industrial production would be short-lived after the global credit crisis spread to India in October. They said that industrial output will slow in the coming months, as the global credit crisis froze money markets. "August's record-low IIP number was an exaggeration, and although September's data marked some improvement, it continued the slowing trend we have been seeing in the last few months," Goldman Sachs said in a note.