Industrial production up 3.4% at six-month high, growth may remain muted

Growth may remain muted on weak exports, rural distress, credit constraints

Industrial production jumped back to a six-month high of 3.4 per cent in April, buoyed by a rise in capital goods production and moderate pick-up in manufacturing. 

The industrial growth managed to recover from a contraction of 0.1 per cent in March, when growth had dipped for the first time in 21 months. The index of industrial production (IIP) has witnessed low growth since November, 2018, and is expected to remain muted, owing to weak exports, rural distress, credit constraints and uncertainty over the election outcome, according to economists. 

The contraction in manufacturing output reversed in April, especially in the sensitive capital and consumer goods segment. The manufacturing segment, which constitutes the bulk of the IIP at 77.6 per cent, received a bump in April, rising by 2.8 per cent. Policymakers had feared a deep negative growth had gripped the sector after the segment had contracted for two-straight months till March when it had dipped 0.4 per cent. 

“Despite poor growth in manufacturing, sectors that have shown double growth in April are food products, wearing apparel, wood products and printing/reproduction media,” Sunil Kumar Sinha, principal economist at India Ratings said. On the other hand, important sectors such as motor vehicles, fabricated metal products, rubber, plastics and paper products continued to contract, he pointed out. 

Of 23 sub-sectors within manufacturing, nine recorded a year-on-year contraction, compared to 13 in March. Slowdown in major sectors such as metals and refined petroleum brought down overall growth. On the other hand, apart from furniture and food manufacturing, which saw healthy growth in the financial year, computer hardware production managed to see a healthy growth. 

This is after the government pushed manufacturing in the sector on a sustained basis over the past nine months, through a series of benefits and the phased manufacturing programme aimed to reduce imports of electronics goods. The capital goods segment, which connotes investments, saw growth rise by 2.5 per cent. Production in the category declined 8.7 per cent in March, almost the same at 8.9 per cent in February. Kickstarting private investments has remained high on the agenda for the Modi government in its second term, with statistics suggesting slowing investment in the private sector. 

Driven by machinery and heavy transport, capital goods production had been on a solid upward swing till October. But since then, contraction has become the norm for every month, with the exception of December 2018. 

For consumer durables, the growth rate stood at 2.4 per cent in April, up from the 5.1 per cent contraction in March.

 Even before that, consumer goods production had been slowing down, being reflective of inventories that have built up in the third quarter of 2018-19, when capacity utilisation also improved. But, with demand tapering off, production has slowed down, economists had pointed out. 

In April, except primary goods and consumer non-durables, all other segments grew at a low single digit. On the other hand, all other user-based segments either showed a negative growth or low-single digit growth. 

“IIP growth for April is impressive after a negative growth in March. Our projection was 1.2 per cent. However it is too early to extrapolate the same for the year as the base effect would be playing a role till October or so when the rates were high last year,” Madan Sabnavis, chief economist, CARE Ratings, said. 

Overall IIP growth for the entire year would be about 4.5-5 per cent but the state of monsoons, kharif harvest, pick up in investment, government spending and household consumption in second half of the year would play important roles in growth, Sabnavis added. 

The two other sectors in the IIP — electricity and mining — also recovered in February, data released on Wednesday showed. 

Electricity generation rose 6 per cent in the latest month, more than the 2.16 per cent rise in March. On the other hand, mining output grew by 5.1 per cent in April, against a slight 0.83 per cent rise in the previous month.