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India's 1999/2000 industry output jumps, worries remain

India's industrial output more than doubled in financial year 1999/2000 (April-March), driven primarily by a sharp increase in manufacturing output, government data released on Friday showed.

But analysts cautioned that the recovery could slow down if interest rates rose on heavy government borrowings budgeted for the current fiscal year.

They also warned that lower rural demand due to an ongoing drought and fears of a poor monsoon could affect consumption demand, dampening industrial output.

The government said the Index of Industrial Production or IIP rose eight per cent year-on-year in the financial year compared with a 3.9 per cent growth in the previous year.

The manufacturing sector, which has around 80 per cent weight in the IIP, rose nine per cent during 1999/2000 compared with 4.3 per cent in the previous year.

The mining sector which has around ten per cent weight in the index, rose by 0.6 per cent during the fiscal year, compared with a 1.7 per cent decline in the previous year while the electricity sector rose marginally to 6.6 per cent from 6.5 per cent.

The electricity sector also accounts for around ten per cent of the index.

But analysts sounded a note of caution.

"Looking ahead, it seems the tight fiscal situation and the massive borrowing programme of the government will put the brakes on a sustained industrial growth," said Pradeep Srivastava, chief economist at the National Council of Applied Economic Research.

Analysts fear that the government's gross borrowings, budgeted at a staggering Rs 1.17 trillion rupees ($ 266.4 billion) for 2000/01, will push up interest rates later this fiscal year, dampening industrial growth.

Analysts also said the drought affecting five states and a poor monsoon forecast could affect agricultural output and depress rural demand, adversely affecting the currrent consumption-led industrial recovery.

The consumer goods segment registered strong growth of 5.7 per cent in 1999/2000, up from 2.4 per cent in the previous year.

The poor performance of the capital goods segment was another worrying sign, analysts said.

"The worrying point is the sluggish growth in the capital goods sector where very little investment is seen," said Srivastava.

The capital goods segment registered 4.8 per cent growth in the fiscal year, sharply down from 11.8 per cent in 1998/99.

Reuters

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