India better than best in industrial growth race

Despite a slight slowdown, India boosts one of the fastest growing industrial production rates in the world. While the latest release from the ministry of statistics has shown industrial production growth to have dipped a tad to 6.9% in November, this level is still higher than most of the major economies like US, UK, Eurozone, Japan, Brazil, Indonesia and Russia.

In fact, in the April-November FY06 period, industrial production has recorded an 8.3% growth. Among the countries being compared, only China and Argentina seem to have recorded faster industrial production growth rates of 16.6%, and 9.6% respectively.

On the global sphere, the US’ industrial production grew only by 2.8%, with the consumer goods and business equipment sectors recording declines in the recent period. In fact, economies like the UK, Eurozone, as an aggregate, and Indonesia, saw declines of 2.4%, 0.8%, and 3.4% respectively in their overall industrial production.

Poor performance by the mining and the electricity sectors, coupled with a general slowdown in exports, seem to be some of the major causes for the slowdown in industrial production rates in India.The mining sector seems to be the biggest drag.

The past five months have seen the sector record successive declines; in the month of November alone the sector has recorded a decline of 1.4%. The electricity sector is also proving to be a major drag on industrial production. Although the growth in the sector has picked up in recent months, it is still much lower than the previous financial year.

Perhaps a fall in exports has played a key role in curtailing industrial production growth rates in the economy, as overall production in the industrial sector caters to both domestic and global demand.Global demand is represented by exports or growth in Indian exports.

Subsequently, a fall in exports or export orders could have a negative impact on overall industrial production growth in the economy. In November ’05, exports saw close to a 12% decline compared to November ’04. This drop in exports could also have played a key role in denting industrial production.

A correlation of 0.86 between the variables is a further proof of the strong relationship between industrial production and exports. It is also important to note that the exports sector does not dominate industrial production growth in the Indian economy, as the Indian economy is more about consumer demand, with consumption contributing nearly 70% to GDP and exports contributing only 15% to India’s GDP.

The manufacturing sector is proving to be the strongest driving force towards industrial production growth in the Indian economy. The sector has recorded a 8.1% increase in the month of November ‘05. Other performing sectors are the consumer goods sector and the capital goods sector, both recording double-digit growth figures.