India's manufacturing sector rises to a nine-quarter high of 13.1%

The petrochemicals sector saw a credit offtake growth of 19.14% in the first quarter

The manufacturing sector grew at a nine-quarter high during the April-June period at 13.1 per cent, giving a leg up to the gross domestic product (GDP).

Although a large part of it could be attributed to the low base of last year((-) 1.8 per cent), sectoral analysis suggests that the performance of key sectors like automobiles, textiles, engineering, consumer durables and petroleum products led the growth.

“Growth in the manufacturing sector (13.5 per cent) also indicates broad-based recovery of demand,” finance secretary Hasmukh Adhia said in his tweet. Investment activity, as indicated by gross fixed capital formation and Reserve Bank of India’s credit offtake, remained subdued in the manufacturing sector per se. The gross fixed capital formation (GFCF), a proxy for investment, posted a 10.02 per cent growth in the first quarter, much lower than the 14.4 per cent posted in the fourth quarter of the previous fiscal.

Although the non-food credit offtake reported saw a growth of 10.9 per cent in the April-June quarter against 4.48 per cent in the corresponsding period last year, the industry segment presented a muted picture. Credit offtake in the industry segment (small, medium and large) grew by just 1.11 per cent in the quarter ended June. It was a (-)1.5 per cent in the corresponding period in 2017-18.

“With the manufacturing sector growing well, it all comes to the banks now. Banks must ensure that flow of credit must start taking place in a big way. The demand for credit will start picking up now,” Amitabh Kant, CEO, Niti Aayog, told Business Standard. “With capacity utilisation at a peak, majority in the private sector wants to make fresh investment to meet the growing demand in the auto and engineering sectors. This is a good sign,” he added.

The petrochemicals sector saw a credit offtake growth of 19.14 per cent in the first quarter against a 2.9 per cent growth last year. Textiles saw a credit offtake growth of 5.38 per cent against a 4.22 per cent contraction last year. Similarly, engineering posted a 4.29 per cent growth in credit against a 4.05 per cent contraction previously. Corporate sector’s performance in the non-finance sector in the quarter ended June also lent support to the official data.

Net sales of non-finance listed companies grew by about 19 per cent in the June 2018 quarter compared to their performance a year ago. This is higher than any quarter in six years, according to data compiled by the Centre for Monitoring Indian Economy (CMIE). The net profit of non-financial companies grew by a massive 44.2 per cent in the first quarter of the fiscal, compared to 2.3 per cent in the previous quarter.

Steel, retail trading, general purpose machinery and readymade garments are some other industries that saw a spike in inventories during the June 2018 quarter, according to the CMIE. On the outlook for the manufacturing sector, Mahesh Vyas, managing director and CEO of CMIE, wrote recently that it will depend on whether companies built that inventory to feed growing demand or whether they were left with large inventories because demand slowed down towards the end of the last quarter. 

During the quarter ended June 2018, listed non-finance companies added Rs 237 billion to their closing stock, suggesting that the industry is anticipating high demand going forward.

Consumer durables sector saw personal loans growth of 10 per cent in the April-June quarter against a contraction of 1.78 per cent in the corresponding period in 2017-18.

The number is in line with the index of industrial profuction data, which showed that the manufacturing sector grew by 5.2 per cent in the first quarter against 1.6 per cent growth in the corresponding period last year.