Capital goods, non durables drive industrial growth in July

There was some cheers in the industrial sector as the industrial output grew 2.6% in July, surprising various economists, as it had contracted for two straight months prior to this.

 

However, much of the push was given by the capital goods that constitutes almost 9% of Index of Industrial Production (IIP) -- grew a massive two year high of 15.6% against contraction of almost 6% a year back.

 

Before July this year, this component was at an all-time high in June 2011 when it grew by 38.7% .

 

Experts believe that this component of IIP usually remains unpredictable. "I have never able to understand the volatality in capital goods and I will be cautious in interprating it", said D K Joshi, chief economist of CRISIL.

 

The boost in the capital goods came from electrical machinery which surprised everyone and grew by 83.6%. This segment has a weight of 1.98% on IIP. Economists had said that this was due to a comparitively low base in the corresponding month last year.

 

Experts also pointed out the fact that the growth was concentrated in this segment and not well distributed. "If one ignores the capital goods, then IIP would show a sluggish growth for July and hence these numbers do not mean much", said Joshi.

 

Capital goods contributed 1.4% in the overall IIP growth of 2.6% and hence, a major share is attributed to this part.

 

Also, consumer non-durable goods grew at 6.8% this month against 0.6% in July 2012. On the other hand, durable items pulled down the consumer goods segment as these contracted 9.3% in July versus 0.8% in same period last year. As a result, the overall consumer goods -- durables and non-durables combined -- contracted 0.9% in this month against 0.7% a year back.

 

"Consumers do not really cut their spendings on FMCG products as these are basis day to day requirements, however, they do delay their purchase of durable goods for the coming festive seasons when spendings on durables tend to go up", said Joshi. He added that good monsoon also pushed up the demand for non-durable products.

 

The Prime Minister's Economic Advisory Council (PMAEC) expects industries to grow by 2.7%. The industries so far, in this year, have contracted 0.2%.