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India released its industrial production (IP) data for April on Wednesday. With an annual growth rate of 1.95 per cent, IP grew for a fourth consecutive month, after having contracted during six out of the previous nine months.
However, the good story ended here. A sub-two per cent growth rate was lower than the market expectation of around 2.5 per cent growth. Also, as expected, accumulated inventory did play a role in the minds of the manufacturers, as the index for April was lower by nearly 14 per cent as compared to the upwardly revised index in March. More notably, it was the highest month-on-month decline since April 2011.
The growth rate of the capital goods sector, which rebounded sharply in March, having recording an annualised growth of nine per cent (revised upward from 6.9 per cent by preliminary data), slumped to a mere one per cent in April. However, the third consecutive month of positive growth indicates some sense of stability in this sector, as it contracted during nine out of the previous 10 months. However, it is difficult to conclude, at this point in time, that the capital goods production might have bottomed out, since it could be the result of pure base effect. Interestingly, while the capital goods segment is one of the more volatile components of IP, there is one trend that repeats with unerring regularity. Every year, the index of capital goods production shoots up in March as compared to February, only to retrace in April from the March high.
Given this, it is difficult to conclude that capital goods production has indeed bottomed out. One needs to keep an eye on the data for the next few months to be able to arrive at a conclusion.
Moreover, even the April Index of Industrial Production (IIP) data looks suspect. When one considers the disaggregated data at the two-digit level, a major distortion is visible in the category of wearing apparel; dressing and dyeing of fur. The index value for this segment rose sharply to 241.1 in April as compared to 129.2 in April 2012 - an annualised jump of 86.6 per cent. Even on a month-on-month basis, the index rose by nearly 40 per cent. This has pulled up the overall index substantially. In fact, despite having a weight of only 2.78 per cent in the IP, this segment contributed as much as 3.1 points to the overall index on an annual basis, while the IIP in itself increased by only 3.2 points over the same period.
If we extrapolate the average growth rate in production of this segment for the past 12 months, it would have grown by only 15.8 per cent. Had that been the case, overall IP would have increased by only 0.4 per cent in April and not 1.95 per cent, as the official data suggests.
The author is a Delhi-based independent economist
