India's IIP grows 2.6% in Jan

Analysts had expected a much muted industrial growth at 0.65%

Industrial growth slowed to 2.6 per cent in January, against 3.2 per cent in December 2014. However,  it belied apprehensions  of much slower growth in January, expressed by many analysts. The expansion, though was not broad-based and was largely confined to highly volatile capital goods sector.

The quality of the Index of Industrial Production (IIP) data may again spark off a debate, with industrial growth almost doubled from 1.7 per cent to 3.2 per cent in December and industrial contraction almost cut by 60 percentage points from 4.2 per cent to 2.6 per cent in October.  

For the April 2014-January 2015 period, the growth stood at 2.5 per cent, compared with 0.1 per cent in the year-ago period, leading analysts to say it is a bit of a recovery.  

Analysts polled by Reuters were expecting industrial output growth at 0.65 per cent in January. In that sense, January data surprised the analysts on higher side.

“It is a thin recovery, as there is a marginal improvement, mainly on account of considerable traction in manufacturing. However, it is not a decisive recovery, as due to a base year effect, the index should have shown double-digit growth,” said D K Joshi, chief economist, CRISIL. A note by CRISIL said,  the January  reading  of overall IIP data fails to suggest  that a sharp uptick in the industrial growth is in the making.

The growth in January came largely because of capital goods production. Capital goods production rose 12.8 per cent, against contraction of 3.9 per cent in January 2014.   With a weight of 8.8 per cent in IIP,  capital goods themselves have given push  to the index by 1.8 per cent, out of total 2.6 per cent growth.

Chandrajit Banerjee, director general of the Confederation of Indian Industry, was, however, optimistic  on the industrial growth front. “What is heartening is the impressive performance of the capital goods sector, which has notched double-digit growth in January, indicating a pick-up in investments during the month, backed by improved sentiment and government action. We hope going forward, industrial growth will firm up further, as both the government and the Reserve bank of India are working in sync to realise the objective of higher growth and moderate inflation,” he added.

Industry-wise, only a few segments rose significantly. While electrical machinery and apparatus rose 28 per cent in January, furniture rose 23.5 per cent. Rubber and plastic products rose 15 per cent and basic metals by around 14 per cent.

The consumer durables segment continued to contract, with output in this segment falling 5.3 per cent in January. For April-January FY15, this segment recorded contraction of 14.2 per cent, against a decline of 12.5 in the corresponding period of FY14. Together with it, fast-moving consumer goods declined, albeit  marginally by 0.1 per cent.

The intermediate goods segment contracted 0.8 per cent in January.

The manufacturing sector, which weight of 75.5 per cent in the IIP, expanded 3.3 per cent in January, against 0.3 per cent in January 2014. During the April-January period of FY15, it recorded growth of 1.7 per cent, compared to contraction of 0.3 in the corresponding period of FY14. Mining woes continued, with output in this segment falling 2.8 per cent in January, against a rise of 2.7 per cent a year earlier. Electricity generation increased just 2.7 per cent, compared with 6.5 per cent in the year-ago period. This might affect industrial production in the next few months.

“Mining is expected to pick up in the coming months, with the auction of coal blocks. But problems remain, with the investment cycle not picking up and demand for consumer durables being extremely weak,” Joshi said.

The relevance of IIP in terms of  its contribution to gross  domestic product (GDP) has now declined considerably. However, the data is still important to gauge movement in industrial activities volume-wise.


DOWNWARD TREND
India's IIP growth (YoY in %)