Don’t miss the latest developments in business and finance.

Industrial output grows 3.8% in June, most in four months

Driven by consumer durables and basic goods, manufacturing up 4.6%

BS Reporter New Delhi
Last Updated : Aug 13 2015 | 2:33 AM IST
Industrial production in June rose 3.8 per cent over a year ago - the highest rate in four months - mainly pushed by the manufacturing sector. A recovery in the mining and electricity sectors, though, remained elusive, showed official data released on Wednesday.

In fact, even manufacturing growth during the month was not broad-based; production of capital goods declined, while that of consumer non-durables showed only a marginal rise.

Cumulative industrial production growth in the April-June quarter, as measured by the index of industrial production (IIP), stood at 3.2 per cent, compared with 4.5 per cent in the same period a year ago. Though IIP accounts for only 25-26 per cent of industrial data used in national accounts, the year-on-year decline seen during the April-June period could have some adverse impact on India's gross domestic product (GDP) during the quarter.

OUTLOOK
  • Manufacturing PMI rose to a six-month high of 52.7 points in July, from 51.3 the previous month
  • Indirect tax collections jumped 39.1% in July; part of that came from a hike in excise duty on oil last year and a withdrawal of sops on automobile and other companies from January this year

The manufacturing sector's output grew 4.6 per cent in June, compared with two per cent the previous month. But this had a major impact on the overall IIP, as the sector has a little more than 75 per cent weight on the index.

ALSO READ: Two positives

Finance Minister Arun Jaitley said manufacturing growth, led by consumer durables and basic goods, was a positive development for the economy. "It shows the economy is firmly on the growth path."

Jailey said these figures were consistent and needed to be read with growth in indirect tax receipts. "It is especially notable that inflation has simultaneously declined to 3.8 per cent, with food inflation standing at only 2.2 per cent."


Jaitley added basic goods had done well, notably urea and complex grade fertilisers, various forms of steel, molasses and bagasse.

Electricity generation, meanwhile, rose only 1.3 per cent during the month, compared with six per cent in May. This could have an adverse impact on industrial activity. Growth in this segment, though, looked low also because of a high base of 15.7 per cent in the same month a year ago.

Mining, too, could not join the growth story. Production in this segment fell 0.3 per cent, compared to a rise of 2.3 per cent in May this year, and a increase 4.8 per cent in June last year.

"IIP growth was led by manufacturing. Mining and electricity performed poorly in June," said India Ratings & Research Chief Economist Devendra Kumar Pant.

Within manufacturing, capital goods contracted 3.6 per cent, after seven months of growth. Pant said this pointed to a weak investment condition.

Consumer durables production, on the other hand, grew 16 per cent. But that is largely due to a low base; the output had fallen over 23 per cent in June last year.

Besides consumer durables, basic goods also showed reasonable growth, of 5.1 per cent, though the rate was half the 10.2 per cent seen a year ago.

Elsewhere, within manufacturing, production of intermediate goods rose only 0.8 per cent and that of consumer non-durables 1.3 per cent. Consumer non-durables not showing high growth might prove a signal for RBI to cut rates.

But since the push to IIP came from basic goods and consumer durables, Pant believed it gave an indication that consumption was taking place.

Also, the contraction in capital goods does not augur well for a healthy investment scenario.

Pant said demand was there but it was not rising because there was still some existing capacity. "Thus, greenfield expansion is not happening."

Madan Sabnavis of CARE Ratings said though growth in manufacturing was encouraging, the time to rejoice had not come yet. To come to the conclusion that recovery was happening, this trend would have to continue beyond September, he said.

Recently, Chinese smartphone maker Xiaomi announced a tie-up with Foxconn to start an assembly unit in India, while Foxconn separately said it would invest $5 billion in setting up an electronics manufacturing factory in Maharashtra over three years. However, these initiatives will take time to fructify.

A slowdown in the Chinese economy and a devaluation of the yuan will also affect the Indian economy, as large-scale dumping will take place. With cheaper imports, demand might rise. But that would not push investments in newer capacities, said economists.

In terms of industries, 16 of 22 groups in the manufacturing sector in June showed positive growth over the same month a year ago.

"We would expect industrial production to improve in the second half of the financial year, aided by some revival in demand, while still contingent on a push to stuck projects and reforms," said Rishi Shah, economist with Deloitte India.

More From This Section

First Published: Aug 13 2015 | 12:58 AM IST

Next Story