June IIP up 8.8%;Pranab says encouraging,experts not convinced

New Delhi, Aug 12 (PTI) Industrial production revived
moderately in June in India registering a growth of 8.8 per
cent even as experts said the trend may not last long due to
sustained inflationary pressure and likelihood of more rate
hikes by the Reserve Bank.
However, the better-than-expected industrial production
prompted Finance Minister Pranab Mukherjee to term the June
numbers as "encouraging" that will boost economic growth if
the trend is sustained.
The recovery in factory output, as measured by the Index
of Industrial Production (IIP), from 7.4 per cent in June 2010
was led by good performance of the manufacturing sector and
better output of capital goods.
During the first quarter (April-June) this fiscal, IIP
growth stood at 6.8 per cent, as against 9.6 per cent in the
corresponding three-month period last year.
"It is too early to say whether this shows an overall
cyclical turnaround... Such numbers may also prompt the RBI to
go ahead with further rate tightening in case inflation is
seen to persist at over 9 per cent," Deloitte Haskins & Sells
director Anis Chakravarty said.
Output of the manufacturing sector, which constitutes
over 75 per cent of the index, grew by 10 per cent in June,
2011, compared to 7.9 per cent in the same month last year.
Off take of capital goods jumped by 37.7 per cent in
June, 2011, as against a moderate increase of 3.7 per cent
during the corresponding month last fiscal.
While economists remained cautious, Finance Minister
Pranab Mukherjee termed the June numbers as "encouraging".
"It is encouraging. If this trend continues, it will give
a boost to growth," Mukherjee told reporters here.
Mukherjee further said: "If these growth rates are
maintained for manufacturing and electricity, then that will
be substantial contribution to the positive growth. I do hope
it would be possible for the industry to pick up the same
growth rate sooner than later".
During the month under review, electricity production
also improved, witnessing a growth of 7.9 per cent, as
compared to a growth of 3.5 per cent in June, 2010.
"This uptick (in IIP growth) may not be sustained given
that growth in June has benefited disproportionately from a
sharp 37.7 per cent expansion in capital goods output, which
has displayed substantial volatility over the past 15 months,"
ICRA economist Aditi Nayar said.
She said domestic inflationary concerns would remain the
key focus of the RBI's monetary policy.
However, RBI deputy governor Subir Gokarn said that the
June IIP numbers indicate that moderation in economic growth
in not broad-based.
He said the central bank would also take into account
various other factors before deciding on whether to go for
further rate hikes.
"We have been tracking other indicators as well. The
first quarter performance of corporates results are in. We
will do some detailed analysis of that looking at credit
flows... Ultimately the decision would be based on all of
these inputs taken together. One number here and there is not
a decisive number," Gokarn said here.
The RBI has hiked interest rates 11 times since March
2011 to tame inflation and India Inc has blamed the frequent
rate hikes for dwindling investments and moderating industrial
growth.