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Economy: Fundamental shift... - Views on News from Equitymaster
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  • May 13, 2003

    Economy: Fundamental shift...

    The industrial output figures are out and numbers indicate that the Indian industry may be well on a path of revival. The index of industrial production (IIP) has registered a growth of 5.8% for FY03 as indicated by data collated by the government. The healthy growth seen in the IIP has been mainly effected by significant growth recorded in the manufacturing and the mining sectors.

    The manufacturing sector grew by 6% in FY03 (2.9%), while the mining sector recorded a growth of 6.6% (3.0%). However, the electricity sector was the laggard with a growth of 3.2%, which was marginally higher than 3.1% last year. What is commendable about the performance of India Inc. in FY03 is that despite poor monsoons, industrial activity has grown significantly. This indicates that the economy may be slowly entering a stage where there are other factors besides agriculture that drive industrial output.

    The case in point is the retail boom happening in the country. More and more middle class households are taking credit in order to buy products like two wheelers, cars and also investing in houses. The benefits of this consumption are apparent in the output of the manufacturing sector. That apart, Indian goods are also finding acceptance in the export markets and this has helped increase output further. This is indicated by the strong growth in exports (17%) registered by the country in FY03.

    The capital goods sector has recorded a strong growth of 10.4% compared to 3.4% last year. This indicates that Indian companies are in the process of augmenting capacities. This could also mean that Indian capital goods are finding a market abroad. Also, higher consumption of capital goods in the country could indicate that Indian Inc. may be expecting further orders from international markets as well as demand from the domestic markets. This is further validated by the fact that among imported goods that saw a strong growth in FY03, capital goods were the most prominent.

    Also infrastructure activities in the country will give further boost to sectors like cement and steel. In FY04 too retail demand is likely to drive growth in the economy. Thus any improvement in monsoons will be an added icing on the cake. The IIP trend indicates that the Indian economy's fortunes may be fast getting de-linked from monsoons. If the late 90's was the period of rapid growth through investments, the early part of this decade seems headed to become a period of consolidation. India Inc. has managed to improve efficiencies considerably when faced with a slowdown and increased competition. So much so, that they are now in a position to make their mark in the global arena. These seem to be enough reasons for one to be bullish on the Indian economy. The stock markets may not be far behind.



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