Industrial output grew 5 per cent during February, its strongest rise in three quarters, on back of strong growth in capital goods and consumer goods sectors, the index of industrial production (IIP) data released by the Central Statistics Office showed on Friday.
The most encouraging indicator in the data was the continuing robustness of the capital goods sector, which is widely considered as a proxy for investments and indicative of a turnaround in sentiment in the manufacturing sector.
While capital goods rose 8.8 per cent over the same period last year (against a contraction of 17.9 per cent), consumer non-durables rose 10.7 per cent (compared to a decline of 2 per cent), indicating increasing discretionary spending among consumers.
The factory output growth had declined by 2 per cent during February last fiscal. According to the index of industrial production (IIP) data, the manufacturing sector posted a strong growth of 5.2 per cent as against a contraction of 3.9 per cent during February 2014.
Corporate India said that the development reflected industrial recovery and an impending turnaround in the investment cycle. The manufacturing sector is expected to grow further following the rate cuts by banks including SBI, ICICI and HDFC earlier this week, reducing cost of credit.
On Tuesday, though the RBI in its monetary policy review kept the policy rate unchanged at 7.5 per cent, it mentioned that it was still awaiting for its two interest rate cuts this year to be passed on to consumers. The IIP rose by 2.8 per cent in April-February.
During the month, while the mining sector grew 2.5 per cent compared to 2.3 per cent in the same period a year ago, electricity generation grew 5.9 per cent, almost half of 11.5 per cent achieved in February 2014.
“The capital goods sector has shown an improved performance indicating that investment activity is gradually gaining traction due to improved sentiment and a gradual pick up in new business and foreign orders. This is supported by the impressive performance of consumer non-durables indicating a pick- up in both consumption and investment demand,” industry body CII said.
It added that many stalled projects, which have been waiting for availability of credit at cost effective rates, would be encouraged to restart their operations and eventually be a trigger for a turn in the investment cycle. Consumer goods grew 5.2 per cent during the month compared to a contraction of 5.2 per cent during the same period a year ago.