Good times again for the economy?

Just A day before the factory output data came out, the foreign trade numbers showed a colossal 31 per cent rise in oil imports. The rate of growth is far ahead of the 6.78 per cent rise for oil imports in the first five months of the year and yet there is no sign that the economy is soaking in so much oil. This becomes pertinent as the factory data on Friday too surprised analysts who had forecast a less than a 1 per cent growth rate. But discounting such surprises the rebound bears out US Treasury Secretary Timothy Geithner's remarks last week about a change in investor sentiments in India. The output data for August possibly points to a slow but firm revival in economic activities. The IIP grew 2.7 per cent year-on-year, as businesses have slowly regained faith in the government's ability to make policies that help and not hinder them. Analysts caution that it is too early to be optimistic — electricity production fell by 1.9 per cent while capital goods production — a key indicator of investment — has contracted by 1.7 per cent. Corporate earnings too are expected to be muted for another two quarters, they warn.

This is the highest growth in industrial production since February this year when IIP touched 4.3 per cent. That demand for goods is re-emerging is evident from a rise in manufacturing by 2.9 per cent. This is the first month since November last year when all the use based sectors (basic to consumer durables) show a positive trend in one month. The contraction in capital goods too is much less than previous months when production in the sector dipped sharply by 27.9 per cent in June this year. The growth in August for machinery and metals signal a possible revival in capex plans of companies. Which way would the factory output for September veer? The problem is July numbers which showed a modest 0.1 per cent growth in industrial output have been revised to a negative 0.2 per cent.

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