The latest IIP performance comes in at a much higher rate than expected, and hence is very encouraging and provides strong indications of improvement in business sentiments, says CARE Ratings

Surpassing market expectations, the index of industrial production (IIP) for April 2014 came in at a high 3.4% as against the sharp contraction of -0.5% in the previous month, indicating an improvement in business sentiments and revival in investor confidence. The improvement in IIP raises hopes of a turnaround for India's industrial sector, especially compared with last fiscal's dismal performance, feels CARE Ratings.

The ratings agency, in a research report, said, "The latest industrial performance comes in at a much higher rate than expected and hence is very encouraging and provides strong indications of improvement in business sentiments. Given that this improvement has been even before the result of the general elections it raises hopes that the country’s industrial sector is on the path of a turnaround from the previous fiscal’s dismal performance.”

During April, all main segments recorded a significant and encouraging pickup. The growth recorded in the manufacturing sector has been noteworthy. It recorded positive or above zero percent growth after a gap of eight months. The improved performance of the mining and electricity segment further supported overall industrial output in April 2014.

Mining registered a positive growth of 1.2% in April 2014 as against -3.4% during the same period last year. The pickup in mining activity was partly after the ban on iron-ore mining was revoked in the state of Goa which is the country’s largest exporter of minerals.

Growth in manufacturing also turned positive at 11.9% in April, when compared with a growth of 4.2% in same month last year. This is very encouraging, given that the manufacturing sector was besieged by negative growth for nearly all of FY14.

Fourteen industries registered a positive growth during the month which included electrical machinery and apparatus with the highest growth (66%) followed by machinery and equipment (9.6%) and Tobacco products (9.1%).

Negative growth was recorded by 8 of the 22 industries which include Radio, TV and communication equipment with the sharpest decline (-31.6%) followed by wearing apparel, dressing, and dyeing fur (-22.1%) and Motor vehicles, trailers and semi-trailers (-14.6%).

Electricity segment registered a significant jump in output from 5.3% in April 2014 to 11.9% in May 2014.

CARE Ratings said, sustained growth in manufacturing would help revive domestic economic demand and growth. "However,” the agency said, "There exists a cause of worry on the performance of the sector going forward given the uncertainties pertaining to the monsoons. Subnormal monsoons could affect agricultural output, rural incomes, prices rises and increases in interest rates all of which could reverse the gains seen at the start of this fiscal."