Manufacturing slows industrial growth to 2.7%

Consumer goods contract 1.6% in May, against growth of 4.6% a year earlier

India’s industrial output grew a disappointing 2.7 per cent year-on-year in May, compared with 4.1 per cent in April, primarily due to weak growth in the manufacturing sector, data released by the Ministry of Statistics and Programme Implementation showed on Friday.

For May last year, the Index of Industrial Production (IIP) grew 5.6 per cent.

The cumulative growth in industrial output for the first two months of this financial year was three per cent, compared with 4.6 per cent in the year-ago period.

In May, manufacturing activity increased only 2.2 per cent year-on-year, compared with 5.1 per cent in April and 5.9 per cent in May 2014. Among the bright spots, electricity generation increased six per cent year-on-year, compared with a contraction of 0.5 per cent in April. Mining increased 2.8 per cent in May, compared with only 0.6 per cent in April. (DAMPENER)

Among the sub-groups in manufacturing, all saw deterioration compared to May last year. Growth in capital goods stood at 1.8 per cent, against 4.2 per cent a year earlier; basic goods grew 6.4 per cent, against 7.5 per cent a year earlier; and growth in intermediate goods stood at 1.2 per cent, compared with 3.5 per cent in May 2014.

The consumer goods segment contracted 1.6 per cent in May, compared with growth of 4.6 per cent in May 2014, while the consumer durables category contracted 3.9 per cent, against 3.6 per cent growth a year earlier. Growth in consumer non-durables was almost unchanged from 5.2 per cent in May 2014.

Core sector data for May, released on July 1, showed growth of 4.4 per cent, leading to expectations of good IIP numbers for May.

“Some of the components of the capital goods sector have been volatile. In line with our expectations, consumption-oriented sectors continued to show weakness. Weakness in consumption is indicative of weak rural demand and low government revenue expenditure,” said Dhananjay Sinha, head of research at Emkay Global Financial Services.

Though capital goods is a volatile segment in the IIP and its ability to sustain industrial growth isn’t certain, this segment has been posting growth of 6-12 per cent since November. Economists attribute this to a few stalled projects coming on stream. According to a project-monitoring group set up to expedite clearance of stalled projects, all pending issues for 255 projects, worth Rs 9 lakh crore, have been resolved.

“Negative consumer demand growth is an area of concern and we hope the government will bring out specific measures to stimulate demand in the economy,” said Jyotsna Suri, president of the Federation of Indian Chambers of Commerce and Industry.

“Consumption remains weak and so does fresh investment. Usually, consumption grows post-harvest, around this time every year. But this year, it hasn’t shown signs of a revival. We don’t expect either consumption or investment to pick up till the second half of the year,” said Madan Sabnavis, chief economist, CARE Ratings. “We expect the current weakness in consumption data, as well as in industrial output to some extent, to continue in June, July and August.”