Industrial Growth Soars to 3-yr High of 6.4% in Aug

The high growth likely to sustain at least till November due to festival season

Industrial growth rose to 6.4 per cent in August, a nearly three-year high, from 4.1 per cent in the previous month, on the back of resurgence in all segments — industry, mining and electricity generation, official data released on Monday showed.

Industrial growth had earlier touched high levels in October 2012, at 8.4 per cent. The high growth is expected to sustain at least till November, thanks to the festive season.

The growth, as measured by the Index of Industrial Production (IIP), might have come partly on a low base of 0.5 per cent in the same month of the previous year. Low growth in the same month a year ago showing relatively higher growth in the period under consideration is called low base effect.

However, the very fact that analysts polled by Reuters expected industrial output to grow 4.8 per cent in August implied there was some revival as well.

While the festive season runs till the middle of next month, the low base effect will run till the end of this month.

The revival in industrial growth comes at a time when policymakers are keeping their fingers crossed over high economic growth for the current financial year. The first quarter ended with only seven per cent GDP expansion, against 7.5 per cent in the previous quarter.

In the first two months of the second quarter, IIP rose at an average of 5.2 per cent. In the first quarter, industrial growth in volume terms had stood at 3.3 per cent. According to the new methodology of calculating economic expansion, it is largely IIP that drives industrial growth in GDP numbers in the first three quarters.

All the three broad segments — manufacturing, mining and electricity — posted higher rate of growth in August compared to July. Because of this, industrial growth rose 4.1 per cent in the first five months of the current financial year against three per cent in the same month of the previous year.

Chief Economic Advisor Arvind Subramanian tweeted, “Encouraging news on Indian economy. IIP growth increased to 6.4 per cent, consistent with indirect tax revenue performance.”

While manufacturing growth climbed to 6.9 per cent in August from -1.1 per cent a year ago, mining saw an expansion of 3.8 per cent against 1.2 per cent and electricity recorded 5.6 per cent growth against 12.9 per cent in the year-ago period.

Although base effect resulted in a spurt in manufacturing and mining as the former contracted and the latter expanded only 1.2 per cent in August 2014, electricity managed to grow at a reasonable rate despite a huge growth in the year-ago period.

In terms of use-based category, capital and consumer durable goods pushed up industrial production. While capital goods rose 21.8 per cent in August against 10.6 per cent in the previous month, consumer durables posted 17 per cent growth against 10.3 per cent.

“We suspect that the growth in consumer durables is also coming on the back of some pick up in urban consumption levels as already being shown by auto sales numbers,” said Rishi Shah, economist, Deloitte India.  

However, consumer non-durable products saw an expansion of only 0.4 per cent, though not as bad as 4.6 per cent contraction in the previous month. Fast-moving consumer goods, which are still bogged down by the Nestlé Maggi noodles controversy, saw only marginal growth. Instant food mixes led to a 0.14 per cent fall in IIP, given its weightage of 0.13 per cent. In July, its negative contribution was 0.2 per cent. Bigger category of food products declined 4.5 per cent in August. As many as seven items of 22 industrial categories showed negative growth. The impact of surge in gold imports was clearly evident in gems and jewellery production, which soared 192.3 per cent in August. In that month, gold imports jumped 140 per cent to $4.9 billion.

Going forward, Aditi Nayar, senior economist with ICRA, said inventory build-up ahead of the festive season should provide some sequential boost to output of manufactured goods, particularly consumer durables, contributing to a pickup in IIP growth in September 2015 relative to the 2.6 per cent growth in September 2014.

“A shift in the festive calendar would impact the number of working days in October and November in 2015 as compared to last year, introducing noise in the growth rates for the manufacturing and mining sub-sectors. In our view, a favourable base effect (2.7 per cent contraction in the IIP in October 2014) is likely to result in a temporary spike in IIP growth in October 2015,” Nayar said. As many as five industrial categories showed contraction out of the total 22 in August, against 10 in July.

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OUTLOOK FOR SEPTEMBER

• Manufacturing  PMI down to 52.1 points in September from 52.3 in August
• Central excise duty collections  rise 68.4% to Rs 22,489 cr in September y-o-y

WELL-OILED FOR GROWTH

• Manufacturing growth rises to 6.9% in August against -1.1% a year ago
• Mining growth at 3.8% against 1.2% a year ago
• Electricity growth at 5.6% against 12.9% a year ago
• April-Aug IIP growth at 4.1%, against 3% a year ago

Reference - http://www.business-standard.com/article/economy-policy/industrial-growth-soars-to-3-yr-high-of-6-4-in-aug-115101201023_1.html