Industrial output growth slowed to 4.2% in July from an upwardly revised 4.4% in the previous month but still beat analysts’ expectations, buoyed by a decent expansion in manufacturing, showed the official data released on Friday.
What gave some credence to policymakers’ assertion about a turnaround of the economy was the fact that both capital goods and consumer durables rose in double digits — 10.6% and 11.4%, respectively in July — albeit aided by favourable bases (both the segments had contracted a year earlier). The 4.7% growth in manufacturing, although lower than the 5.4% in the previous month, does corroborate the Centre’s robust mop-up of indirect taxes so far this fiscal. Excise collections grew 70% in the first five months of the year and by 9% even after the stripping of additional levies imposed since the last Budget. However, while the good growth in consumer durables production in July, after rising by 17.4% in the previous month, seemed to have been aided by an uptick in urban consumption, the contraction in consumer non-durables output (-4.6% in July) for the second time in the last three months points at the negative impact of last year’s weak farm harvests on rural India.
Rural demand anyway is dampened by damages to the 2014-15 rabi crop from unseasonal rains, a plunge in commodity prices for more than a year and low wage growth. That’s why analysts, unlike the government, chose to wait for some more time to gauge any sustained recovery in consumer demand. The production of consumer durables had witnessed growth in April after 10 straight months of contractions and the segment also recorded a slump once (in May) so far this fiscal.
Although notorious for short-term fluctuation, the fact that the output of capital goods — a proxy for fixed corporate investments — grew 4% in the April-July period on top of an 8.7% expansion a year earlier, and basic goods recorded 4.8% growth in the first four months of this fiscal, against a decent expansion of 8.3% in the same period of 2014-15, indicate enhanced activity in the infrastructure sector, probably aided by robust government spending, said analysts.
While the government revised the June growth figure to 4.4% from 3.8% announced earlier, it sharply trimmed the April growth rate to just 3% from as high as 4.1%.
However, with the festive season round the corner and the government expecting a better kharif harvest than the last year, when similar dry spells had shrunk production, due to higher areas under various summer-sown crops, the consumer sentiment is expected to improve in the coming months. This will likely help private demand and boost manufacturing, they added.
“The latest data is a good sign and does signal that IIP growth could be in the region of 4% for the entire year considering that there is expectation that both investment and consumption would pick up in second half,” said CARE Ratings chief economist Madan Sabnavis.
However, mining and electricity generation continue to see weak growth. Mining grew just 1.3% in July even on a favourable base of 0.1% a year earlier. Electricity, however, recorded just 3.5% growth, thanks to a high base of 11.7% a year before.