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Economy in Brief

India's Industrial Production Up "Only" 11.1% in May
by Carol Stone July 12, 2007

Industrial output in India has accelerated markedly over the last couple of years. In the data for May, published today in Mumbai by the Central Statistical Organization, the gain was 11.1% from May 2006 and that actually disappointed some analysts, who had hoped for a repeat of April's 12.4% year-to-year growth.

This is a sustained period of good growth, but India has seen prior periods of rapid expansion: the late 1980s and the mid-1990s are seen in the first graph here, which takes a long view. Since India has been known for its rapid growth as a center for the service sector, we compare growth in manufacturing to that in gross value added in trade, hotels and communications. We see in the second graph that sector did surpass manufacturing production growth from 2001 to 2004, but manufacturing has picked up considerably since early 2006 as services simply maintained their pace.

Big increases in India's industry have come in the metal products and machinery industries, and in the classification of goods by end use, it is capital goods that have shown by far the most growth. Because monthly activity is subject to wide swings, we judged recent comparative performance by calculating 6-month moving averages and taking the year-to-year growth in those. By that measure in May, capital goods output has risen 19.3%, while intermediate materials are up 12.5% and consumer goods by 11.2%. By industry, other outsized gains have taken place in plastics and petroleum refining, food, textiles and wood products.

Heavy industry has thus become increasingly important in India. We find this somewhat surprising; as we noted here last week for Germany, we often have the impression that China and other East Asian countries have all the growth in these sectors. But in fact there seems to be enough high tech heavy equipment demand to go around and construction projects in many places, especially right there in India, which require heavy metal forms and parts. So unlike the analysts and reporters who noticed a slight downtick in total production growth in May, we'd see instead the continuation of very rapid pace.

Calendar Year Averages
INDIA Industrial Production May 2007 Apr 2007 Mar 2007
2006 2005 2004 2000- 2003
Total Index, NSA, FY93/94=100 264.2 253.1 288.5 239.6 216.7 200.8 --
Mo/Mo % Change, SA 1.9 -1.0 5.8 -- -- -- --
Yr/Yr % Change, NSA 11.1 12.4 14.5 10.5 7.9 8.5 5.0
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