July IIP: Lead indicators show mixed outlook

IIP to get a boost from low growth in July last year

After weak GDP growth of 7% in the first quarter of the current financial year, July data for industrial production, expected to come later today, will shine a light on the performance of a sector that accounts for more than a fourth of the economy. 

Indicators showed a mixed result in the sense that the core sector, which constitutes around 38% of the Index of Industrial Production (IIP), grew at a three-month-low rate of 1.1% in July. However, the widely-tracked Nikkei purchasing managers' index (PMI) was the highest at 52.7 points in July for the current financial year so far before falling to 52.3 points in August. 

Sale of passenger cars also grew at the fastest rate of 17.47% in July for the current financial month so far, but the growth slowed to 6.06% in August. 

Peep into indicators for July IIP
Growth of eight-industry core sector year-on-year (38 per cent weight in IIP)
April	May	June	July
(-) 0.4%	4.40%	3%	1.10%
Indirect tax collections growth year-on-year
April	May	June	July	August
46.20%	37.30%	33.30%	39.10%	36.70%
Passenger  car  sales
April	May	June	July	August
18.40%	7.70%	1.53%	17.47%	6.06%
Manufacturing PMI (in points)
April	May	June	July	August
51.3	52.6	51.3	52.7	52.3
Source: finance ministry, commerce dept, SIAM, Markit Economics

Indirect tax collections also remained robust, rising by 39.1% in July, though the rate of rise slowed a bit to 36.7% in August. However, more than half of the growth was accounted for by additional measures such as hike in excise duty on petroleum in four phases since October last  year, removal of excise duty sops for auto, capital goods sectors and increase in the service tax rate to 14% from 12.36% from June. 

Amid these mixed signals, IIP is likely to benefit from the so-called 'base effect' of low growth in July last year.

Industrial production in 2014 had risen 4.3% in June and 0.9% in July. IIP rose at the quickest pace of 3.8% in June in the current financial year so far.

A Reuters poll projected IIP to expand by 3.5% in July, slightly lower than that in June. However, the data for June will be revised later in the evening.