Industrial production expected to see mild upturn in October

Sluggish manufacturing growth, subdued industrial demand pulls down growth prospects during

Industrial production in the country is expected to see only a mild upturn in October despite it being a festival season while coming months will see production drop due to the effects of demonetisation, economists warn

The Index of Industrial Production (IIP) that measures growth in industrial output had expanded by a marginal 0.7 per cent in September. A sluggish manufacturing sector and subdued industrial demand will act against significant growth in October.

However, non-oil, non-gold imports which is taken as a proxy for industrial demand, exhibited growth in October -- the first time in eight month thereby belying the prospect of a revival in industrial demand. It had risen by 1.9 per cent in October, after contracting 3.05 per cent in the previous month..

 

But economists said the latest rise was on account of a rise in commodity prices rather than demand for input products into the manufacturing process. "The rise is due to higher commodity prices rather than a upswing in demand." Madan Sabnavis, Chief Economist at CARE Ratings said.

Also, it is to be seen whether this trend will hold for the coming months, he added.

Constituting roughly three-fourths of the IIP, manufacturing had risen by a marginal 0.9 per cent in September. It is this dismal revival in manufacturing growth that economists said weighed down most on IIP.

Industrial production has also been slowed down by 11 straight months of contraction in capital goods. It continued to contract by 21.6 per cent in September, after a fall of 22.3 per cent in August, thereby confirming bleak investment outlook. This contraction has consistently acted as the big drag on the performance of the IIP Index.

However, the consumer durables segment is slated to keep on growing in October after a 14 per cent growth in September. While both urban and rural demand had continued to be high in October, shopping frenzy during the festive season is also expected to boost the growth. "However, growth will cool down significantly from November onwards, also running the risk of a contraction as the effects of demonetisation kick in, curtailing peoples buying power," Devendra Pant, Chief Economist at India Ratings said

The only silver lining for industrial production on the short term horizon is based on the expectation that exports will continue to grow, thereby incentivising production, experts said.

Exports continued to rise for the second consecutive month in October, growing by 9.59 per cent, only the second occasion in the 22 months since December 2014 when a chronic fall in exports started.