The broad smile on P Chidambaram's face lingered as he spoke to reporters soon after news came in that India's industrial production in October rose by a whopping 8.21 per cent from a year earlier, far above the market expectation. "I am very encouraged by the indications of the green shoots in economy in terms of production," the finance minister said.
But industry and economists didn't share that optimism fully as the October number, they said, was reflective of pure base effect that skewed the comparison with the year-earlier data. Also, according to CRISIL Research, industrial output growth was expected to remain at muted levels during the remaining months of this financial year.
The minister, though, had some reasons to be pleased. Backed by a near-double-digit growth rate in manufacturing, industrial activities expanded at an unexpected 16-month-high rate. Also, this is only the third time in the first seven months this financial year that industrial production has risen.
The sequential IIP growth was noteworthy. On a month-on-month basis, the index grew to 171.3 points, from 163.1 points in September, a 5.01 per cent expansion.
Some experts, who quickly hailed this as a sign that the economy was finally turning the corner, said this might augur well for the overall gross domestic product (GDP) growth in the second half of the year, as industry (without construction) has a 19-20 per cent weight in GDP.
Manufacturing, with a weight of 75.5 per cent in the Index of Industrial Production (IIP), rose 9.6 per cent in the month, against a contraction of six per cent a year ago. Within manufacturing, consumer goods, both durable and non-durable, grew sharply, by 16.5 per cent and 10.1 per cent, respectively. Capital goods expanded in October, at 7.5 per cent, for the first time after seven successive months of contraction.
But many economists doubt the IIP recovery could be sustained over the remaining months this financial year. The markets were also not too enthused by the data as they discounted the IIP growth as a blip. The Bombay Stock Exchange benchmark Sensex on Wednesday closed at 19,355.26, 32 points lower than yesterday's close.
Analysts said high October IIP growth, when seen together with the near-double-digit retail inflation (9.9 per cent in November), made little case for a rate cut by RBI in its monetary policy review next week.
While the low base magnified manufacturing and capital goods, it was the opposite for mining output. Even as it grew to 122.5 points on the mining index from 111.3 the previous month, the sector saw a 0.1 per cent year-on-year contraction because of the high base of 112.6 points in October last year.
Just the contrary in capital goods, which contracted to 242.4 points in October, from 249.7 in September, though it rose on an annual basis because the sectoral index had slipped to 225.4 points in October last year, from 286.8 the previous month.
Electricity generation, which many had blamed for low IIP growth in the past few months, posted a reasonable growth of 5.5 per cent, against 5.6 per cent in October last year.
Industry chambers, however, continued to call for a rate cut, saying IIP data generally showed recovery in a month prior to Diwali.