Industrial output growth zooms to 5-year high

Manufacturing grows 10.6%, highest since June 2011

Industrial output grew at its fastest pace in five years at 9.8 per cent in October on robust festival demand, official data showed on Friday. A four and a half month high in double-digit growth in manufacturing, particularly consumer durables and capital goods, fuelled industrial production.

Industrial production, as measured by the Index of Industrial Production (IIP), grew 3.6 per cent in September and had contracted 2.6 per cent in October 2014, so the October expansion was on a low base. Economists warned October could turn out to be a statistical aberration.

Industrial production rose 4.8 per cent in the first seven months of 2015-16, against 2.2 per cent in the corresponding period of the previous year.  Manufacturing, which constitutes three-fourths of the IIP, grew 10.6 per cent in October, up from 2.6 per cent in September. The growth was the highest since June 2011.

Electricity generation also kept pace at nine per cent growth in October, albeit lower than its 11 per cent rise in September. Mining improved over the three per cent rise in the previous month to 4.7 per cent growth in October.

Within manufacturing, consumer durables were up by 42.2 per cent in October, against 8.4 per cent in September, due to the festivities. Consumer non-durables recorded a growth of 4.7 per cent, against a contraction of 3.5 per cent. As a result, consumer goods production rose 18.4 per cent, against 1.2 per cent in September.  Capital goods grew 16.1 per cent, against 10.3 per cent, indicating rising investments may fuel the IIP in the coming months.

Expansion in basic goods was static as these grew 4.2 per cent against 4.1 per cent. Output at core sector industries rose 4.2 per cent in October, unchanged from September. However, intermediate goods grew 6.7 per cent against 4.2 per cent.  It was reported last month that firms were stocking up on furniture before the festive season and the trend continued with production of furniture registering a 138.9 per cent rise in October. Recording the highest growth among product categories, it had grown 69.9 per cent in September. The second-highest rise was in office, accounting and computing machinery, which grew 48.4 per cent.

Terming industrial production numbers in October as “very good”, chief economic adviser Arvind Subramanian said: “It’s a high number, good number and encouraging number. But one has to be a little bit careful in interpreting this... especially this month, as there is a Diwali effect.”

The spike in industrial growth is likely to be a short-lived statistical aberration, said Aditi Nayar, senior economist with Icra. “With a reversal of the base effect, we expect a substantial moderation in IIP growth in November 2015, in line with the trend recorded by automobile production,” she said.

After growing 14.4 per cent in October, automobile production contracted 9.8 per cent the following month. Also, a slowdown in thermal electricity generation is expected to weigh upon the IIP in November.

Shubhada Rao, chief economist with YES Bank, said: “It is unlikely that high growth of October will be sustained in November, as the base effect turns adverse, working days recorded are lower on account of festive season and there is inventory drawdown post pre-festive season ramp up. Hence, this month’s print should be seen in conjunction with November reading, which could see a pullback.”

MANUFACTURING BOOST