India’s Industrial Output Rises

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Nov. 1 – India’s industrial economy looks to be on the rise, as output of its eight core industries increased to the highest levels since last September. The eight core sector industries have a combined weight of 38 percent in the Index of Industrial Production (IIP), indicating stronger construction and investment activity compared to low growth earlier this year. The eight sectors include coal, electricity, cement, petroleum refining, steel, fertilizers, crude oil, and natural gas.

Individual weightage shows coal production increased 12.5 percent, resulting in increased power generation. Electricity, the highest weighted core industry at 10.32 percent, grew 12.6 percent as monsoons filled reservoirs and boosted hydro power generation. Cement production increased 11.5 percent, petroleum refinery products grew 8.0 percent, and steel increased 6.6 percent, with fertilizers, crude oil, and natural gas growing to a lesser extent.

The rise in output is contributing evidence that an economic recovery is setting in.

With economic growth coming in at 4.4 percent between April and June, the government needs a push to avoid beating the decade low of 5 percent growth that was reached in 2012.

Growth of FDI in India may bolster the recovery. According to the United Nations Conference on Trade and Development (UNCTAD), Indian FDI grew 35 percent to $13.6 billion in the first half of 2013. Most of the growth is due to mergers and acquisitions, which grew by 65.7 percent.

This growth is a breath of fresh air after 2012 in which FDI declined 24 percent in South Asia and 29 percent in India due to high domestic inflation and a global decline in FDI due to global economic uncertainties.

India remains the third most attractive destination for FDI (after China and the U.S.) in the short to medium term, according to the UNCTAD report. Other surveys done by companies such as Ernst and Young and the Japan Bank of International Commerce (JBIC) also see FDI levels in India rising in the next few years.

Developing countries are becoming both significant hosts and major sources of FDI. For the first time last year they received more than half of global FDI. This is a big change from what is traditionally an exchange from one developed country to another.

“The region [developing Asia] continues to absorb more than half of the FDI directed to developing economies as a group, and one quarter of global FDI flows,” stated the UNCTAD report.

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