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In what could lend some credence to the government’s optimism that the economy would begin to show signs of revival from the second quarter of this financial year, the country’s industrial production grew at a four-month-high rate of 2.6 per cent in July, according to official data released on Thursday. However, much of the expansion was on account of the capital goods sector, boosted to the extent of 1.6 per cent by high growth seen in electrical equipment.
The numbers come as a relief also because this expansion has been after two straight months of contraction. The country’s gross domestic product growth had slipped to a four-year low of 4.4 per cent in the first quarter of 2013-14.
Meanwhile, the Consumer Price Index (CPI) -based inflation rate eased to 9.52 per cent in August, against 9.64 per cent in the previous month.
Within the Index of Industrial Production (IIP), mining continued to suffer, with output declining for a tenth straight month in July — by 2.3 per cent. It had fallen 3.5 per cent in the same month last year.
Manufacturing, which accounts for over 75 per cent of IIP, expanded by a four-month-high rate of three per cent, compared with a stagnation (no growth) in July last year. Electricity generation grew at the steepest pace — of 5.2 per cent —against 2.8 per cent in the same month last year.
There had been no output growth in electricity the previous month.
With a significant improvement in July, the overall contraction in industrial production in the April-July period this year has come down to 0.2 per cent, the same level as that in the corresponding period last year. Economists, however, say it might still be too early to conclude that the upturn in July means a recovery for industries.
“Things are changing and the initial indication is better. However, we still need to wait for the next two months to say whether it is a turnaround,” said India Ratings Chief Economist Devendra Pant.
The numbers would certainly give the economy some confidence for the second quarter, as IIP had fallen 1.1 per cent in the first quarter of 2013-14, against a decline of 0.2 per cent in the corresponding period of 2012-13, economists said.
However, much of the boost to the IIP is provided by the capital goods sector, which is quite volatile. Capital goods production grew at a two-year-high rate of 15.6 per cent in July, against a 5.8 per cent contraction in July 2012. The sector’s growth pace in July was the fastest since the 38.7 per cent of June 2011.
But CARE Ratings Chief Economist Madan Sabnavis sounded caution, saying this could be a one-off case because of electrical equipment alone.
The segment, which has a weight of 1.98 per cent on IIP, grew 83.6 per cent in July. Economists attributed the rise to the low base of the same month last year.
“It is a positive sign but too early to interpret as a trend of industrial revival, as growth is reflected in only one or two segments, and not distributed among all.”
The intermediate goods grew at 2.4 per cent in July, against 0.1 per cent a year ago.
Consumer goods continued to present a mixed picture. While the consumer durables plunged 9.3 per cent, against a 0.8 per cent growth in July last year, non-durables rose 6.8 per cent, against 0.6 per cent last year. Experts say consumer durables goods might remain lacklustre till the festive season begins in October.
