The commoner saves the Indian growth story

India's factory output crawled up a notch. From negative it's back in the positive. Industrial output for May grew 2.4 per cent from -0.9 per cent in April. Performance of core sectors, such as, manufacturing and electricity grew at a tepid 2.5 and 2.9 per cent. Mining contracted for the third consecutive quarter, declining 0.9 per cent. What perhaps stood out as an aberration is the growth in the consumer durables sector, at 9.3 per cent, and the 11.3 per cent growth in the cement sector, indicating that the consumer continues to be the savior of India's growth story.

The slight improvement in India's factory output does not signal a revival in sentiment or faith in governance. The two big industry chambers, CII and FICCI, reiterated the need to put reforms on fast track, stating that the negative growth in capital goods sectors (-7.7 per cent) indicates that the investment momentum has dried up.

"There is also a need for fast tracking the reforms process which would stem the slide in industrial production by announcing investors' confidence boosting measures such as allowing foreign investment in multi-brand retail and increasing FDI limits in civil aviation and defence production," stated Chandrajit Banerjee, Director General, CII.

The mood, even with a positive set of numbers, continues to be of pessimism and anxiousness. Nobody seems to be certain on which way the winds will blow. A lot will depend on how monsoons fare (which determine rural income), inflationary pressures and commitment towards reforms from the new finance minister. There is looming uncertainty on whether the Reserve Bank of India will go ahead and revise interest rates, a measure that the industry touts necessary to revive investments.

The consumer might be bailing out the Indian growth story, but it does not necessarily imply that the spending power of the resilient Indian consumer remains intact; much of the demand is driven by rural areas, which again depends on the rain.

The macro fundamentals still look worrisome - and it's clear that the effort to get the economy moving again will have to be an integrated effort between the RBI, government and businesses.