With fears of delayed monsoon doing the rounds, an economic think tank on Tuesday said lower agricultural production is unlikely to affect the industrial growth this fiscal.
"With the declining share of the agriculture sector in overall GDP, a weakening of the relationship between agricultural production and industrial growth is inevitable," National Council of Applied Economic Research said in its latest monthly report 'Macrotrack'.
The monsoon, which generally hits Kerala by June 1, was delayed by about four days, raising a lot of anxiety about the fate of the kharif crop and the overall performance of the agriculture sector this fiscal.
However, it is too early to worry about the impact of the monsoon, NCAER said, adding a poor or good start to the rainy season is no indicator of the monsoon's eventual performance.
Giving examples, NCAER said monsoon arrived in time last year, but turned out to be poor by the end of the season with the rainfall being 87 per cent of the long period average.
On the contrary, monsoon was late by a week in 2003, yet the season ended with rains being 105 per cent of the long period average.
Till not very long ago, NCAER said the years of poor industrial growth were usually preceded by a bad agricultural year, but this link appears to have been broken.
Increase in non-farm income and penetration of financial products, has weakened the link between farm income and rural expenditure on manufactured products, the think tank said.
The factors driving industrial growth are primarily consumption demand and exports, it added.
The present upturn in industrial activity, which began in 2002-03, not only remained buoyant throughout 2003-04, but gathered momentum during 2004-05.
An average industrial growth of 8.1 per cent coupled with manufacturing growth of 8.7 per cent in 2004-05 may not be the best the industry has achieved, but is significant as there is no base effect at play here, NCAER said.
Along with increasing capacity utilisation, the present trend of output growth indicates a positive outlook for industry in the current year, it said.
The think-tank said a blip in Index of Industrial Production growth in February 2005 is surely not a sign of cyclical downturn.
"Ongoing industrial growth, which is as much investment led as consumption spending, is fairly evenly spread within the manufacturing sector and indeed reflects optimism in the short run," NCAER said.
Though industrial growth in the short run appears to be well on track, it said sustaining it in the medium term is definitely a challenge.
Emphasising further reforms, NCAER said though industry has been freed from regulatory controls at the central level, it is yet to be freed from undue regulatory control at state and local levels.
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