Factory production expands 1.2% in May

Manufacturing sector rises marginally by 0.7%; capital goods decline for seventh straight month

Growth in industrial output rose 1.2 per cent in May 2016, recovering slightly from the 1.3 per cent fall in April. However, important segments such as capital goods and consumer non-durables continued to show contraction, while growth in electricity generation slowed down.  

The index of industrial production (IIP) fell 0.1 per cent in the first two  months  of the current  financial year against 2.8 per cent growth in the previous year, official data showed on Tuesday.

The manufacturing sector, which registered a slight growth of 0.7 per cent, was credited with pulling up industrial output. Manufacturing had contracted 3.1 per cent in April.

• 0.7% Manufacturing growth in May
   
• 1.3% Mining growth in May
   
• 4.7% Electricity growth in May
   
• -0.1% Cumulative IIP growth in FY17 (Apr-May), vis-a-vis same period last year

Electricity generation rose at a much slower rate of 4.7 per cent in May, compared with the growth rate of 14.6 per cent in April. On the other hand, mining output growth recovered modestly, rising 1.3 per cent compared to 1.2 per cent in the previous month.  

While growth in the manufacturing sector, which constitutes roughly three-fourths of the index, managed to rise in May, it has cumulatively fallen 1.5 per cent in the current financial year. In the corresponding year-ago period, it had grown three per cent.

Significantly affecting the IIP was the key sector of capital goods, which declined for seven consecutive months till April. It contracted by 12.4 per cent in May, confirming bleak investment outlook. This contraction has consistently acted as a big drag on the performance of the IIP.

Consumer non-durables also continued to fall for the seventh straight month – going down by 2.2 per cent compared to 9.7 per cent in the previous month.

"The sequential improvement in the performance of the IIP between April and May 2016 benefitted from the narrowing contraction of capital goods and consumer non-durables whereas, the pace of growth of consumer durables nearly halved in the same months," Aditi Nayar of ICRA said. 

On the other hand, the consumer durables grew by six per cent in May, half the rate of 12 per cent in April. It was the only segment to have grown  in double digits in April.

In May, 14 out of the 22 industry groups within manufacturing showed growth. Growth rates among product categories mellowed in May with office, accounting and computing machinery growing at the highest rate of 18.8 per cent, followed by machinery and equipment, which rose 14.8 per cent.

Furniture, which had registered the highest growth of 28 per cent in April, fell eight per cent in May. Electrical machinery & apparatus, on the other hand, continued to fall by the largest margin at 41 per cent.

Rubber insulated cable (an item within the capital goods sector), continued to contribute the most to the contraction in the index. Sugar and cotton seed oil came in next. Electricity, air conditioners and commercial vehicles were the highest positive contributors to growth. Of this, electricity has figured on the list for the past few months.

The combined output of eight core infrastructure sectors, which carry a total weight of nearly 38 per cent in the IIP index, had risen by 2.8 per cent in May, sharply lower than over 8 per cent in April.