March industrial growth at 5-month low of 2.1%

Rose 2.8% in 2014-15 against contraction of 0.1% in previous year

Industrial growth in volume terms again saw a subdued growth in March, after registering a sudden jump in February.The growth fell to a five-month low of 2.1 per cent in March against 4.9 per cent in the previous month. None of the broad sectors registered contraction. However, growth was largely concentrated on the highly volatile capital goods sector, which rose 7.6 per cent in March, against a fall of 11.5 per cent a year ago.Industrial output had, in fact, fallen 0.5 per cent in March, 2014 and even that could not push up industrial growth much in March, 2015.

This resulted in the cumulative growth of the Index of Industrial Production (IIP) standing at 2.8 per cent in 2014-15, from a contraction of 0.1 per cent in 2013-14, an official release showed here on Tuesday. The malaise in the industrial sector could be gauged from the fact that the expansion in 2014-15 was the same as in 2012-13 and 0.1 percentage less than in 2011-12, which had seen a major slowdown in economic growth. In 2011-12, economic growth stood at just 5.1 per cent, but rose to 6.9 per cent the next year and was estimated to have reached 7.4 per cent in 2014-15.Mining and manufacturing exhibited better performance in March than in the year-ago period, though it was only a shade better. Mining output rose 0.9 per cent against 0.5 per cent a year ago, while manufacturing rose 2.2 per cent versus a contraction of 1.3 per cent.Manufacturing has been the main focus of the new government. But the sector’s growth remained sub-three per cent in 2014-15 (2.3 per cent, versus a contraction of 0.8 per cent in the year-ago period).

Electricity was the only sector that showed some semblance of reasonable growth in March 2014, at 5.4 per cent. Growth fell to two per cent in March 2015. This could impact other segments of industrial growth. Industrial growth in March was highly concentrated on the capital goods sector. Given the highly fluctuating nature of this sector, it was now clear if it would continue to show an expansion. Of the 2.1 per cent growth in IIP recorded in March, almost half can be attributed to just capital goods.

Aditi Nayar, senior economist with ICRA, said,"Although the healthy growth displayed by capital goods since November 2014 appears to suggest that an investment recovery is imminent, this optimistic outlook is tempered by the sharply disparate growth trends displayed by the various components of this sub-index.” For instance, turbines and accessories led to 0.14 per cent decline in IIP in March.

Elsewhere, basic goods output rose at a sluggish pace of 2.3 per cent in March, lower than 4.6 per cent in the corresponding month a year before. However, due to high weight of about 46 per cent in IIP, basic goods also contributed to almost half of the growth in March.

Growth in intermediate goods and decline in consumer goods more or less nullify each other.

Intermediate goods expanded 1.9 per cent, slightly better than 1.3 per cent in March 2014.Bearing the brunt of its durable and fast-moving segment, the overall consumer goods segment continued to contract, though at 0.7 per cent against 2.2 per cent in March 2014.Durables declined 4.7 per cent in March; the corresponding year-ago number was 11.8 per cent.

P.S. Easwaran,Senior Director, Deloitte Touche Tohmatsu India, said,"An area of concern is the negative growth of consumer durables which is a reflection of weak end-use sentiment. If this continues, would an impact on the sector profitability in Q1.”

The fast-moving consumer goods segment grew just 1.9 per cent, against 5 per cent, probably a reflection of a slowing down in the rural economy and the base effect.

“Although growth of consumer non-durables output declined sharply in March 2015 as compared to the previous month, this partly reflects an unfavourable base effect,” Nayar said. The slow down in rural economy could be gauged from the fact that tractors led to 0.17 per cent decline in the industrial output in March.