Investment-led industrial growth augurs well

April’s IIP growth figures are striking due to their composition, apart from the headline number looking healthy at 9.5%.

An investment-led growth rather than one driven by consumption is clearly noticeable, which is a positive signal. An impressive pick-up is evident in sectors like basic, intermediates and capital goods.

Majority of the components within manufacturing that have grown belong to these sectors. For instance, basic chemicals and chemical products, non-metallic minerals, basic metal and alloy, machinery and equipment and transport equipment have grown in double digits.

An increase in investment and capacity utilisation is happening, backed by positive expectations of economic growth and profitability on these investments.

Nearly 80% of IIP growth during April ’06 was contributed by capital, intermediate and basic goods, compared with 60% in April ’05. Basic and intermediate goods together make up for 62% of the index. In ’06, intermediate goods was one of the worst performers, with growth averaging barely 2.3%, even though manufacturing grew well driven largely by consumer goods.

Demand for raw materials was either being met by imports or through a draw down in inventories. A 5.3% growth in intermediates in the first month of ’07, therefore, comes as welcome news. Mining and electricity form the bulk components of basic goods, and both have clocked good growth rates this month.

With the building blocks in place to take industrial growth forward, India Inc’s position looks more solid. At this juncture, the main concern is when and by how much will interest rates go up.

Telecom slowdown?

After a blistering pace of mobile subscriber growth in the past few years, do mobile phone companies run the risk of a slowdown in growth? After all, total teledensity is up at 13.4% in May ’06 compared with 9.2% last year, and mobile subscriber numbers have crossed the 10 crore-mark.

The answer lies in the varying teledensity across different regions.

While penetration is quite high in metros, it is substantially low in some regions with large population such as UP, Rajasthan, Bihar, Orissa, classified under circles B and C. In the past 12 months, subscriber numbers in circle B and C have grown at 99% and 168% whereas for metros, growth has been 56%.

At present, mobile teledensity in metros is 65 per 100 whereas the national average is about 10. For circles B and C, it is 7.2 and 4.6 respectively. If the current growth rates are to be maintained for next year too, teledensity would reach its peak in metros and would stand at 14 and 12 for circle B and C.

Sustaining current growth rates in metros in the long run seems a difficult task but in B and C circles, scope for growth exists. To reach teledensity of 20 per 100 in two years, overall growth rate required would be about 43%. Although this is less than last year’s figure, it implies headroom for growth.

The relative saturation of metro markets, which account for about 25% of total subscribers, could be a concern for companies. As subscriber base growth slows, telecom players will have to increasingly focus on driving up usage and generating revenues through value added services.

Growing subscribers in B and C circles have result in per subscriber revenues falling. But this is not a concern since costs too have been falling significantly. And this is set to continue, for example, the move to issue three new national long distance licences will increase competition and further lower costs for telecom players.

Thus, the profitability of mobile players does not seem under threat even as the nature of their subscriber base undergoes a massive transformation.