A sudden drop in IIP and manufacturing index in May 2018 causes a bit of surprise for the industrial segments.
A sudden drop in IIP and manufacturing index in May 2018 causes a bit of surprise for the industrial segments. IIP moving down to 3.2% from 4.9% in April 2018 was primarily contributed by manufacturing (weightage 77.6%) growing at 2.8% compared to April growth of 5.2%. The mining sector (weightage 14.4%) grew by 5.7% compared to 5.1% growth in the previous month and contributed 0.7% to IIP growth.
A number of products under manufacturing have caused this sudden drop in output. Some of these are manufacturing of tobacco products (-15.6%), textiles (-0.5%), wearing apparel (-12.8%), leather products (-1.5%), paper (-5.0%), printing (-5.1%), pharmaceutical products (-8.2%), rubber & plastics (-7.8%), other manufacturing (-31.9%), gold jewellery (- 69.9%, plastic bags by (-44.4%), copper electrodes and copper bars by (-40%) with a combined weights of nearly 17% in non-steel intensive manufacturing.
Under use-based classification, the consumer non-durables segment (weightage 15.33%) has clocked a negative 2.6% growth in May 2018. All these facts indicate that growth in non steel intensive segments has contributed more to the slide in manufacturing indices compared to steel intensive segment.
This is buttressed by capital goods segment growing at 7.6% during the month after achieving a growth of 13% in April 2018. While intermediate goods clocked a marginally positive growth of 0.9%, the infrastructure/ construction sector obtained 4.9% monthly rise and consumer durable at 4.3%. The manufacture of steel intensive segments performed well during the month. The manufacture of fabricated metals (weightage 12.8%) rose by 12.9% which is extremely favourable for the steel industry. Out of this, the manufacture of stainless utensils has risen by 61.7% during the month. The manufacture of motor vehicles, trailers has gone up by 21.1% and out of this the manufacture of commercial vehicles rose by a whopping 72.6% after going up by 94.3% in the previous month, the manufacture of other transport (rail, ships, air) went up by 8.1% and the manufacture of furniture has gone up by 13.2%.
The above data indicate a reasonably good growth in engineering and fabrication and automobile segments during the month and this has influenced the performance of these segments in month of June 2018 also. In April-June quarter, the auto sector grew by 16.6% with commercial vehicles rising at 51.6% (light commercial vehicles by 36.5%, Med/Hy CV by 83.6%), two wheelers by 15.9% and 3 wheelers by 54%.
Roughly around 40% of the manufacturing sector belongs to steel intensive segments and therefore the reasonably good growth in these areas could not prevent the overall sectoral growth from the slide during the month. This fact raises an important issue of making an insight analysis into decomposing the manufacturing sector into various sub components and to observe the trend of these sub segments before arriving at the direct correlation of manufacturing with steel industry. An econometric analysis between these two sectors would still be relevant as normal statistical analysis conceals more than it reveals. Nevertheless, a deeper analysis of decomposition of manufacturing into various sub segments does seem to be appropriate to derive a firm answer to the question that to what extent the steel intensive segments are responsible to bring down the growth of manufacturing during May 2018. The consumption of HRC, CRC and Coated products mostly going in for production of engineering goods, consumer durables has gone up by 8.2%, 10.4% and 18.4%, respectively. The imports of HRC has gone up by 43% and that of coated products by 26%, while indigenous availability in respect of HRC has gone down by 2.2% and that of coated products has grown by 2.3% compared to the previous year. This fact needs an elaboration. In the context of rising demand from the engineering sector, there is no reason why this incremental growth in demand can’t be catered to through higher indigenous availability rather than opening up the import route unless the demand belongs to high value items which are beyond the capability of domestic producers.
Electricity generation has risen by 4.2%. However, the manufacture of electrical equipment has gone down by 0.6% during the month. The consumption of electrical steel sheets has increased by more than 54% sustained by a 47% growth in imports at 0.16 MT in the first two months of the current fiscal compared to the previous year.
In the first quarter of the current fiscal, the total steel consumption at 23.4 MT has grown by 8.4%. Imports of finished steel at 1.9 MT have gone up by 11% while steel exports at 1.4 MT went down by 34%. Higher steel imports need constant monitoring and time bound strategic thrusts.
The writer is DG, Institute of Steel Growth and Development (Views expressed are personal)