IIP grows 4.3 pct in August; CPI inflation at 3.28 pct

Industrial production in the country rose to a nine-month high of 4.3 percent in August in the second month after the new Goods and Services Tax (GST) regime was introduced on July 1.

However, consumer inflation in September also marginally eased to 3.28 percent from a year ago, government data showed on Thursday.

Both July IIP and August CPI reported revised numbers to 0.9 percent (from 1.2 per cent) and 3.28 per cent (from 3.36 per cent), respectively.

As per the IIP figures highlighted by the ministry, the roll-out of the GST regime did not push industrial production.

In August, rise in manufacturing and growth in mining and electricity helped the recovery.

On the other hand, the manufacturing sector, which constitutes more than three-fourths of the IIP, rose by 3.1 percent in August.

It fell by 0.2 per cent in June, after falling by 0.4 per cent in May. However, within the manufacturing segment, 13 of the 23 sub-groups recorded a contraction, as compared to 15 in the previous month.

As expected, industrial growth strengthened appreciably in August 2017 from the mild 0.9 percent in July 2017, as restocking of manufactured items gained steam, after the introduction of the GST and prior to the festive season. Moreover, the mining and electricity sectors recorded healthy performances on the back of coal and thermal electricity, reported credit rating agency, ICRA.

Encouragingly, the sequential improvement in industrial growth in August 2017 was broad-based, led by all three sectors (mining, manufacturing and electricity) and five of the six use-based industries (except infrastructure/construction goods). However, 13 of the 23 sub-sectors of manufacturing with a weight of 27.0 percent in the IIP, recorded a contraction in August 2017.

On a cautious note, this uptick in industrial growth may not sustain in September 2017, with the early indicators for industrial production in the organised sectors, namely, automobiles, coal and electricity generation, revealing some moderation in the pace of expansion from the spikes recorded in August 2017.

In our view, while the impact of post-GST restocking may have started to fade, inventory building prior to the festive season is likely to have bolstered manufacturing growth in the just-concluded month. Nevertheless, given the somewhat unfavorable base effect, we expect the IIP growth to ease in September 2017 relative to print of 5.0 percent in September 2016.

While the positive surprise provided by the IIP suggests that many of the organised sectors have traversed the GST transition, their performance may not be mirrored by the informal sectors.