India's Industrial Production Sector Witnesses 2.7 Percent Growth in May

India's industrial production sector recorded a growth of 2.7 percent in May this year, after almost eight months of dismal performance. Industrial Info Resources (Sugar Land, TX) reports that this performance is the best that the sector has seen since a growth of 6.03 percent was recorded in September last year. The growth in industrial production was 1.2 percent in April. Industry experts have credited this growth to the revival of domestic demand, spurred by economic stimulus packages and the lowering of interest rates. Steps taken by the government have boosted domestic economic activity and have helped offset the impact of lower exports. The growth in May 2009 exceeded the estimate of 1.3 percent growth that was forecast by economists.

The recently announced budget aims to increase spending on rural employment and bring down the tax burden on both ordinary citizens and industries. This is expected to increase production in factories and utilities in the coming months. The effective implementation of the tax rebate system, coupled with more disposable income available to the common man because of the impact of the current budget, is expected to revive consumer demand.

The increase in industrial production is a big relief, after the sector slumped in December 2008 and February and March this year. According to the Index of Industrial Production, 10 of the 17 sectors have witnessed growth. The cement, automobile, and steel industries are showing signs of recovery. In June this year, passenger car sales went up 7.8 percent compared to the same period last year. Motorcycle sales have also increased, with Hero Honda Motors Limited (BSE:500182) (New Delhi), India's largest motorcycle maker, recording an increase of 17.4 percent in sales in June this year. Cement production in May also increased to 17 million tons, an increase of 11.6 percent year over year.

Consumer goods recorded a growth of 12.4 percent in May this year from May 2008. The mining, manufacturing, and electricity sectors grew 3.7 percent, 2.5 percent, and 3.3 percent, respectively. However, the capital goods industry did not show signs of revival, recording a loss of 3.58 percent in May and a loss of 5.35 percent during April-May 2009. In the last fiscal year, the industry witnessed a growth of 4.27 percent in May and of 8 percent during April-May 2008. The slump has been attributed to low demand and a slowdown in investments.

After the economic slowdown, Asian economies are slowly reviving and showing signs of recovery and growth. The World Bank (Washington, D.C.), predicts that India will overtake China as the world's fastest growing economy in the near future. China's industrial production during April and May this year grew by 7.3 percent and 8-9 percent, respectively. Japan posted a growth of 5.9 percent in May over April 2009 figures.

India, which has a $1.2 trillion economy, is aiming for economic growth of 8-9 percent in the medium term. This fiscal year, the country is expected to see an economic growth of 7 percent. The World Bank estimates that India's economic growth will touch 8 percent by 2010. China is expected to witness an economic growth of 7.7 percent. For the fiscal year ending March 2009, India posted a growth of 6.7 percent, which was the slowest in the last five years. India's average growth rate over the last five years was about 8.5 percent.