According to the Centre for Monitoring of Indian Economy’s (CMIE) August monthly review, the optimism surrounding industrial growth stems from the continuation of robust growth in the index of industrial production (IIP), despite a high base. The IIP grew by 11.7 per cent during April-May 2007, over and above the 10.8 per cent rise in the same period of the previous year. IIP growth has been consistently increasing from 7 per cent in 2003-04 to over 8 per cent in the next few years, touching an above 11 per cent growth rate in 2006-07.

The current industrial growth is expected to be sustainable, given a broad based IIP growth. Industrial growth is no longer driven merely by capital and consumer goods. Unlike till 2005-06, growth has now spread to even intermediate goods. While the growth in capital and consumer goods was 15.7 per cent and 12 per cent respectively in 2005-06, that of intermediate goods was merely 2.5 per cent. In 2006-07, however, capital and consumer goods continued to grow robustly at 18.3 and 10.1 per cent but the growth in intermediate goods jumped to 11.9 per cent.

Complementary factors like improved electricity generation, which witnessed 8.3 per cent growth during April-July 2007, too ensure that industry gets the necessary support for a positive future. High investments are also contributing to this positive trend in industry. According to the CMIE data, fresh investments worth Rs 2,90,000 crore were announced in the June 2007 quarter, a reflection of industry’s expectations of robust consumer demand continuing in the coming years.

CMIE industry analyst Samir Athalye said that Indian industrial growth is being driven largely by huge capital investments. “With income levels rising, companies are increasing their production. Further, Western countries now have a more positive disposition towards the Indian economy, thus creating larger FDI flows into the country. All this is likely to drive industrial growth and make it sustainable,” he added.

National Council for Applied Economic Research (NCAER) senior fellow Rajesh Chaddha views the current robust industrial growth phase as an indication of a major blue collar revolution in the offing.

“We have always remained resigned to a mere 15-17 per cent value addition to gross domestic product (GDP) by the manufacturing sector. However, it is time this changes — since a rapidly growing manufacturing sector would help reduce the burden of unemployment and make GDP growth sustainable and equitable.

“With large scale dereservation, especially of small scale industries, and improved infrastructure, industry is all set to witness the magical growth seen by the services sector in the last decade,” he explained.