Industrial Production Expands 4.2% in July

Growth Largely Confined to Capital Goods and Consumer Non-Durables

Following weak growth in gross domestic product (GDP) for the June quarter, industrial production expanded more than four per cent for the second consecutive month. For July, it increased 4.2 per cent, against 4.4 per cent in June, official data showed on Friday.

However, the month-on-month comparison might not give a clear picture, as the Index of Industrial Production (IIP) reading for June was revised sharply from the provisional estimate of 3.8 per cent. The data for July will be revised next month.

“The July IIP data (was) consistent with a steady improvement in GDP numbers,” Economic Affairs Secretary Shaktikanta Das tweeted.

“The manufacturing sector is slowly emerging as a leader of industrial growth, increasing 4.7 per cent,” the finance ministry stated.

For the first four months of this financial year, industrial growth stood at 3.5 per cent, against 3.6 per cent in the year-ago period. If this growth is sustained in August and September, it would have a positive impact on GDP growth for the second quarter.

In the June quarter, GDP growth slowed to seven per cent from 7.3 per cent in the March quarter. For the first three quarters of a financial year, IIP data and filing by listed companies to the Securities and Exchange Board of India primarily account for industrial growth in GDP data.

Friday’s data might maintain pressure on the central bank to cut rates, as inflation is low and economic growth weak.

In July, the IIP growth wasn’t broad-based. Primarily, manufacturing rose at reasonable rates.

The impact of a ban on Nestlé’s Maggi noodles was evident in the production of processed food, particularly in the ready-to-eat category.

Owing to double-digit growth in capital and consumer durables, manufacturing rose 4.7 per cent in July, against the revised figure of 5.4 per cent for June.

Manufacturing, which accounts for about 75 per cent of the IIP, contracted 0.3 per cent in July last year. In fact, it was that data which made the growth in IIP seem higher this July.

Last year, industrial production had increased 4.3 per cent in June and only 0.9 per cent in July.

Electricity generation and mining, the two other broad sectors of the IIP, didn’t record high growth. At 3.5 per cent, though growth in electricity generation was higher in July than 1.3 per cent in June, it was much less than the 11.7 per cent growth in July last year. The slow growth in this segment might be a hurdle to industrial growth in the coming months.

Mining output increased 1.3 per cent. Though recovering from contraction of 0.4 per cent in June, this sector is yet to pick up pace.

Growth in capital goods, a volatile segment of the manufacturing sector, stood at 10.6 per cent, against contraction of 2.1 per cent in the previous month. In the year-ago period, this segment had contracted three per cent.

“Data for the capital goods and manufacturing sectors are noteworthy,” Das said. The capital goods segment recorded impressive growth of 10.6 per cent, boosted by growth in production of commercial vehicles, transformers, cylinders and aluminium conductors, the finance ministry said.

For the second consecutive month, the consumer durables segment recorded double-digit growth, though part of it was due to a low base. In July, this segment expanded 11.4 per cent, against 17.4 per cent in June. In July 2014, this sector had contracted 17.4 per cent.

In July, passenger car sales had increased 17.4 per cent, before moderating to 6.1 per cent in August.

The fast-moving consumer goods sector contracted 4.6 per cent in July, against 2.2 per cent in June and 5.2 per cent in July 2014.

“The contraction in consumer non-durables output for the second time in the past quarter partly reflects the negative impact of back-to-back weak harvests on rural consumer sentiment,” said Aditi Nayar, senior economist, ICRA.

Foods and beverages contracted a steep 12.1 per cent in July. Instant food mixes (ready to eat) — products such as Maggi — recorded contraction of 49 per cent.

For June, this category had contracted 42.7 per cent. The instant food mixes segment contributed 0.2 per cent to the decline in the IIP.

Reference -  http://www.business-standard.com/article/economy-policy/industrial-production-expands-4-2-in-july-115091100983_1.html