Breaking a year’s trend, industrial production and the eight core industries went in divergent directions in September. The index of industrial production (IIP) contracted 0.4 per cent, whereas the index of the core industries grew 5.1 per cent. The core sector has a 38 per cent weight on IIP.
Slow growth in other 62 per cent could be explained by the festive season that saw a month’s delay this year, compared to last financial year. Festive season demand picked up in September last year and reflected well in the consumer durables sector growth, the high base of which is another reason for a slow growth this financial year.
The consumer durables segment contracted 1.7 per cent in September, compared to a massive 8.9 per cent growth in the corresponding month last year. On a sequential basis, consumer durables saw growth of 8.4 per cent.
“I don’t see any other reason of disconnect between these two numbers, except for the fact that the festive season demand was muted this time,” said Madan Sabnavis, chief economist, CARE Ratings.
Since August last year, IIP and the index of eight core industries were moving in sync. High growth in the core sector was reflected in IIP for that month and same in case of a low growth. For example, in October last year when the core sector grew just 0.4 per cent, IIP contracted 4.9 per cent. However in November, as the core sector expanded a massive 7.8 per cent, industrial production rebounded with a six per cent growth.
At 5.1 per cent in September 2012, the eight core industries showed the highest growth this financial year.
The high growth in the core sector, however, did reflect in ‘basic goods’ and ‘intermediary goods’ in the IIP, where the lag period is very short. Basic goods showed growth of 3.5 per cent in September, higher than 3.3 per cent in August. In September last year, basic goods grew 5.3 per cent. Intermediary goods on the other hand saw 1.8 per cent growth, higher than contraction of 1.4 per cent in September last year but lower than 2.6 per cent growth seen in August this year.
Coal output expanded 21.4 per cent in September, and was well reflected in mining growth in the IIP at 5.5 per cent. Coal got support from the (-) 18.2 per cent growth base. Mining showed the highest growth in IIP in the last one year and was pulled down by natural gas, contracting 11.4 per cent in September.
However, on a sequential basis, basic and intermediary goods showed a decline of three per cent and 2.8 per cent, respectively.
“The decline in the pace of growth of intermediate and consumer goods in sequential months is indicative of a moderate demand for finished products ahead of the festive season, even as some key sectors such as passenger vehicles have displayed an upturn,” noted Aditi Nayar, senior economist, ICRA.
The capital goods sector has been volatile for the past few years, so a 12.2 per cent contraction hasn’t surprised many this time.
Going forward, a recovery in industrial growth is expected given the low base of October last year, where the IIP contracted 4.9 per cent and also the demand for festive season shows a pick-up, with festivals in October and Diwali in November. “Overall expectations were that the base effect would have kept the numbers at a positive level. Therefore, real output seemingly is much lower,” said Anis Chakravarty, senior director, Deloitte.