India Inc says factory output growth likely to get better this year

India Inc captains say factory output growth will get better; low-base effect after note ban helped, among others

The spurt in Index of Industrial Production (IIP) points to a revival in factory output that has been broad-based and driven by categories such as fast-moving consumer goods (FMCG), pharmaceuticals, automotive, capital goods and computer electronics, say experts.

Considered an important barometer of investment, the IIP showed improvement in capital goods output led by a growth in inquiries and new orders during the period, said 

M S Unnikrishnan, managing director and chief executive officer of Thermax. “Positive impact is due to a pickup seen on the execution side. A major improvement in the road sector can help make up for any lack of demand for residential construction, thus helping improve capacity utilisation for steel and cement.”

The IIP, announced on Friday, had registered a 17-month high at 8.4 per cent growth in November, against a 5.1 per cent spurt a year ago. This was led by a 10.2 per cent growth in manufacturing activity, which makes up nearly 78 per cent of the IIP. The numbers showed an uptick of 39.1 per cent in pharmaceuticals, 29.1 per cent in computer electronics and optical products, 23.1 per cent in consumer non-durables or FMCG, and 22.6 per cent in automotive. Capital goods output came in at 9.4 per cent, higher than the 5.3 per cent reported a year ago.

Sunil Duggal, chief executive officer, Dabur India, said FMCG output growth was led in part by a low base a year ago, when demonetisation of high-value notes was announced by the government. “The low base (in November 2016) has optically led to this high growth in FMCG this year. Having said that, there is an uptick in consumption and this is showing in better sales offtake. While the growth seen in November is not sustainable, as a whole the FMCG market will get better as the government increases its rural focus and push.”

Harsh Mariwala, chairman, Marico Ltd, said FMCG output would gradually get better as the market rebalanced itself, following demonetisation and the goods & services tax. “Consumption is slowly but steadily coming back and keeping aside the low-base effect (visible currently), the (FMCG) market will gradually improve.”

Vickram Bedi, senior director, personal systems, HP India, said, “The government has been taking an effort to improve the business environment and boost manufacturing. The latest IIP data is a testimony to this growth and we expect it to further gather momentum."

In auto and pharma, sector experts said growth was led by sub-categories such as two-wheelers, commercial vehicles, digestives & antacids.

Aditi Nayar, principal economist, ICRA, said in recent months, pharma production has recorded a high growth. "In September and October, the pharma sector grew 26.5 per cent and 23 per cent. In November, growth was 39.5 per cent. Sub-categories such as digestive enzymes and antacids have displayed a particularly high level of growth, bolstering overall (pharma) growth."

In auto, experts said, November 2017 was an exceptional month, with domestic production expanding 19 per cent and sales growth coming in at 24 per cent. Auto's performance in the IIP for December, said experts, would be even better with domestic production growing 35 per cent and sales growth coming in at 36 per cent.