Damp August data on factory growth

As in July, rise below 1%; manufacturing continues to slump, with pessimism on recovery for another two quarters

Industrial growth refused to pick up pace in August, falling to the lowest this financial year so far  at 0.4 per cent over a year earlier from a 0.5 per cent in July. The largest segment, manufacturing, continued to contract due to decline in capital and consumer goods production, official data showed on Friday.

This second straight month of below one per cent growth might dampen gross domestic product numbers for the financial year’s second quarter (July-September), after the rise to a two-year high of 5.7 per cent in the first quarter.

Because of higher growth in the first quarter, (the Index of Industrial Production (IIP) expanded 3.7 per cent in April, 5.6 per cent in May and 3.9 per cent in June) industrial expansion was 2.8 per cent in April-August this year, against flat output in the corresponding period of 2013-14.

Manufacturing, with a weight of 75.5 per cent in the IIP, declined 1.4 per cent in August against a contraction of one per cent the previous month and a fall of 0.2 per cent in the corresponding month of 2013-14. Electricity was the only star in the broad sectors, with its generation expanding 12.9 per cent in August and 11.7 per cent in July.

However, outlook for electricity generation does not look much promising for  September.  ICRA senior economist Aditi  Nayar said Central  Electricity Authority (CEA) data showed that electricity generation would expand at muted growth of four per cent in September.

Mining output increased 2.6 per cent in August and 1.2 per cent in July. Sentiment in the sector was already dampened, after the Supreme Court verdict on de-allocating of coal mines.

The widely-tracked HSBC Purchasing Managers' Index for manufacturing declined to a nine-month low of 51 points in September, indicating the outlook on factory production is not bright for that month, too.

“The overall picture is subdued. Companies are not expanding their capex. Capacity expansion is not happening. Manufacturing will remain subdued for at least the next two quarters,” said Arun Singh, senior economist with Dun & Bradstreet.

Industrial growth did not turn up despite eight core sector industries, having a weight of 38 per cent in the IIP, growing by 5.8 per cent in August after 2.7 per cent in July. This means non-core sector industries in the IIP had faltered.

 

This was evident from the latest data. The core sector mainly comprises basic goods and output of these rose 9.6 per cent in August against 7.4 per cent in July. All other categories remained subdued.

Capital goods fell 11.3 per cent in August after a decline of 3.9 per cent the previous month, clearly showing the problem of capital expenditure that Singh mentioned.

An analysis by a YES Bank research wing shows that items like rubber  insulated cable,  boilers  and fuel aviation turbine led capital goods production  to decline in August.

Consumer goods, particularly durables, continued to face consumer apathy. Consumer durables production contracted 15 per cent after one of 20.8 per cent in July.

The segment's output rose only in May out of the first five months of the current financial year (April to August). It shows the impact of rising prices and high interest rates on the purchasing habits of consumers.

Fast-moving consumer goods also contracted, by 0.9 per cent, after a rise of 2.3 per cent in July.