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Journalism of Courage
Soaring interest rates,rising input cost and a high base effect pulled down industrial expansion to a dismal 20-month low of 1.6 per cent in December 2010,prompting experts to argue that the central bank should not hike key rates further.
The index for industrial production (IIP) rose a mere 1.6 per cent in December 2010 compared to an 18 per cent jump a year ago,according to figures released by the Central Statistical Organisation on Friday. But thanks to the high industrial growth in the first half of the fiscal,overall IIP during April to December 2010 registered a stable 8.6 per cent growth.
Still,policymakers were disappointed by the dismal December figures although they remained confident of achieving the targeted growth. Finance minister Pranab Mukherjee said: IIP numbers are very unfortunate and it is disappointing but it was on expected lines as it was on yearly basis. Monthly and weekly numbers do not reflect correct picture.
He added that data for the full fiscal will have to be taken into account while analysing the IIP numbers. Let us see how it reflects in the annual picture, he said.
Expressing the same confidence,Planning Commission Deputy Chairman Montek Singh Ahluwalia said: Month-to-month variation in IIP should not occupy us too much… This high frequency IIP data is not necessarily an indication of an underlying trend… In the current year,the Planning Commission has said that GDP will grow at 8.5 per cent or maybe a little higher. That prediction remains.
He said that for achieving the 8.5 per cent growth in Gross Domestic Production (GDP),8 per cent industrial growth for the whole year is enough. The CSO has revised upwards its growth forecast for 2010-11 to 8.6 per cent as against 8 per cent in the previous fiscal on the back of high farm output as well as expansion in manufacturing and services sector.
During December,the manufacturing sector,which accounts for almost 80 per cent of the IIP basket,grew by only one per cent as against a staggering 19.6 per cent a year ago. While the mining sector grew by 3.8 per cent (as against 11.1 per cent a year ago) ,electricity generation stood at 6 per cent (as against 5.4 per cent a year ago),the capital goods sector contracted by 13.7 per cent in December,2010,as against a whopping 42.9 per cent last fiscal. Growth in capital goods is a reflection of investments in the country.
The IIP for November has been revised upwards to 3.6 per cent from the earlier estimate of 2.7 per cent.
Rajiv Kumar,chief economist Ficci said: Base effect is though a big reason but the fact is that IIP has been moderating for a few months now. One main reason is that credit off-take from the bank itself is low and 70-80 per cent of the entire amount is going into infrastructure and not into capacity expansion of the manufacturing sector. It should cause concern.
