Industrial output growth beats expectations

India's industrial production grew at its fastest pace in 15 years in December, surpassing all optimistic forecasts, lending credence to a growing view that the economy is out of the woods and ready for an 'exit' from the crisis-fighting stimulus measures. Industrial output, as measured by the Index of Industrial Production (IIP), expanded by a robust 16.8% in December from the same month a year earlier, data released by the Commerce & Industry Ministry showed. The figure was well above consensus estimates of 12-13%.

India's industrial output had contracted by 0.2% in December 2008, as credit markets seized up in the wake of the global financial turmoil and industrial demand sank amid weak external environment. It was the highest reading since April 1995, when the series, which uses 1993-94 as base year, started. On a month-ago basis (with no seasonal adjustments), however, the December 2009 performance showed an industrial growth rate of 10.81%, the highest since the industrial slowdown began in the third quarter of 2008.

Manufacturing, with an almost 80% weightage in the IIP, grew by 18.5% in December 2009 compared to a 0.6% decline in the same month in 2008. The Electricity sub-segment grew by 5.4% in the month under review versus 1.6% in December 2008. Mining output grew by 9.5% in the last month of 2009 as against 2.2% growth achieved in December 2008.

Consumer Durables expanded by a whopping 46% in December 2009 after contracting 4.2% in the same period in 2008. Consumer Non-durables grew by 3.7% compared to 3.2% in December 2008. Overall, Consumer Goods recorded a respectable growth rate of 12% over a measly 1.7% in December 2008. Capital Goods grew by 38.8% in December 2009 compared to 6.6% for the same month of 2008. Intermediate Goods grew by 21.7% in December 2009 after shrinking 8.9% in December 2008. The growth rate in Basic Goods category stood at 7.5% versus 2% in the year-ago period.

Expressing satisfaction at the latest IIP numbers, Finance Minister Pranab Mukherjee said that the third-quarter GDP growth would be strengthened by the strong recovery in the industrial sector. In fact, if the current momentum in the industrial sector continues at the same pace in the next three months, the GDP growth figure for FY10 could actually surpass the Central Statistical Organisation's advance estimate of 7.2%. Mukherjee expects the economy to grow around 7.75% in FY10 while the RBI sees a growth rate of 7.5%.

For April-December 2009-10, industrial output growth stands at 8.6% against 3.6% during the corresponding period in the previous fiscal year.

For the first nine months of the current fiscal year, Manufacturing recorded a growth rate of 9% (3.6% in April-Dec 2008-09), Mining 8.5% (3.2%) and Electricity 5.8% (2.7%), according to the Commerce Ministry data.

The RBI is widely expected to raise interest rates at its April policy review after it surprised markets with a stronger-than-expected rise in the cash reserve ratio (CRR) in its January meeting. The Union Budget, to be announced on Feb. 26, would have a major bearing on the central bank's future course of action. Higher-than-expected government borrowings might prevent the RBI from raising interest rates.

Earlier this month, RBI Governor Duvvuri Subbarao said that the Government's gross market borrowings in the fiscal year ending March 2011 might be slightly higher than FY10 because of redemptions. Bond yields touched a 16-month high of 7.88% on Thursday on uncertainty about government borrowings in the coming fiscal year