Industrial output stages a comeback: Rises 1.2% in July despite GST

After registering a 48-month low in June, industrial output in the country staged a comeback, rising 1.2 per cent year on year in July. A marginal rise in manufacturing and growth in mining and electricity helped the recovery.

Figures for the Index of Industrial Production (IIP), released by the government on Tuesday, showed that the roll-out of the Goods and Services Tax (GST) on July 1 did not push industrial production into a negative zone, as some experts had predicted.

In June, the index had contracted by 0.1 per cent, owing to a severe contraction in manufacturing. Before this, the index had last fallen by a wider margin of 1 per cent, back in June 2013.

The manufacturing sector, which constitutes more than three-fourth of the IIP, had fallen by 0.4 per cent in June, after rising by 2.6 per cent in May. In July, manufacturing managed to rise by a marginal 0.1 per cent. Within the manufacturing segment, 15 of the 23 sub-groups recorded a contraction, same as the previous month.

A significant amount of destocking had happened in June in anticipation of the July GST roll-out, after which the manufacturing segment rose due to restocking of inventories and return of consumption demand, Madan Sabnavis, chief economist at Care Ratings, said.

Over the coming months, a steady rise in industrial production could be expected, he added.

However, the important capital goods segment — generally taken as an indicator of industrial activity — continued to fall in July, albeit at a less steeper pace of 1 per cent. It had fallen by 6.8 per cent in June, after a fall of 1.38 per cent in May.

Among other use-based categories, consumer non-durables, primary goods, and the newly introduced category of construction goods showed growth in July.

Primary goods rose by 2.3 per cent after contraction marginally (0.1 per cent) in June. But, growth in consumer non-durables cooled to 3.4 per cent in July from the 4.9 per cent rise in June. Construction goods rose by 3.7 per cent, up from the 0.6 per cent rise in June.

Consumer durables fell by 1.3 per cent after the 2.1 per cent contraction in June, solidifying the view that consumer demand is still lagging.

Cumulative growth of overall factory output for April-July, the first four months of the current financial year, was 1.7 per cent. This was much lower as compared to the cumulative growth of 6.5 per cent registered during the corresponding period of 2016-17.

The other two sectors within IIP also showed growth. Mining output rose by 4.8 per cent after the paltry 0.40 per cent in June, owing to a lull in coal mining.

Electricity output continued to fluctuate by a large degree. It rose by 6.5 per cent in July owing to a spike in demand in the summer months. It had stagnated earlier to a low 2.1 per cent in June from the healthy 8.2 per cent growth in May.