After growing at more than 7 per cent for the third straight month up to January, industrial growth may slow down in February, experts say.
The Index of Industrial Production (IIP) had risen by 7.5 per cent in January, up from the 7.1 per cent growth seen in December. This had led economists to predict that economic revival had gained ground as the effects of demonetisation and the goods and services tax (GST) finally dissipated. But the lack of a broad based growth as well as the possibility of a slower rise in non-oil, non-gold imports may restrict growth, they say.
"We have an estimate of 6.1 per cent IIP growth in February. This might look like an industrial recovery but the corresponding figures from a year back - 1.9 % growth in February and 3.8 % in March - show there is a low base effect." Madan Sabnavis said.
Lack of broad based growth
A closer look at the sub sectors showed that IIP growth may be slower. Also, the capital goods segment within the IIP , which connotes investment, grew at a healthy pace of 14.6 per cent in January but came down from the 16.4 per cent growth in December. “This has to be qualified, as capital goods are driven by the vehicle segment and partly by non-electrical machinery. Electrical machinery is still de-growing by 14 per cent,” Sabnavis added.
The manufacturing segment, which constitutes the bulk of the index at 77.6 per cent, rose 8.7 per cent in January, up from 8.5 per cent in December. Of the 23 industries in manufacturing, 16 recorded positive growth. But, experts warned against reading too much into the figures as higher growth was directly related to a low base effect. Also, most of the growth boils down to a few industries, they added.
"The trend in the growth of Coal India Limited’s output, electricity generation and auto production suggest that the pace of expansion of the IIP would record a sequential moderation in February 2018, despite the favourable base effect related to the dip in industrial growth to 1.9% in February 2017 from 3.8% in January 2017." Aditi Nayar, Principal Economist at ICRA said.
Non-Oil Non Gold Imports may slow down
Other macro data may also point to slower economic growth, economists argue. The pace of growth in non oil non gold imports (NoNG) - a crucial sign of domestic industrial demand - fell in February to 7.28 per cent after rising by a substantial 24.4 per cent in January. This is expected to slow down further due to the base effect in place, according to Nayar. Imports in the NoNG category have also reduced in absolute terms, going from $ 28.17 billion in December, 2017 to $ 24.72 in February, 2018.
Over the entire April-January period of 2017-18, the IIP grew by 4.1 per cent, compared to five per cent over the same period in 2016-17. Maintaining a 5 per cent growth may remain tough. "A back of the envelope calculation shows that to average 5% growth for the entire year, the next two months has to register around 9-9.2% growth which can be difficult. On the other hand, maintaining growth of around 7% in Feb and March can lead to average growth of around 4.75% for the full year." Sabnavis said.