Industrial growth rebounds to 2.7%, at 6-mth high in August

Consumer price inflation falls, at 6-mth low in September, but RBI may not cut rates, say experts

Backed by consumer goods and a bit of recovery in the mining sector, industrial production beat market expectations to grow by six-month high of 2.7 per cent in August after two consecutive months of contraction. The reduction in the pace of deceleration in the capital goods sector also played a part in industrial recovery, showed an official data released today.

However, industrial growth was less than 3.4 per cent recorded in August, 2011. But in the context of sharp slowdown in industrial sector in recent months, 2.7 per cent growth could mean a gradual recovery, if the trend persists, economists said.

 

Fall in the growth of electricity generation, accentuated by power outage in August, could prove to be a dampener to this trend as also reversal of favourable base effect for industrial production, particularly consumer goods sector.

Another government data today showed that the retail-price inflation fell to the six-month low of 9.73 per cent in September. At the outset, it might give a leverage to the RBI to go for a rate cut, but economists believed rate of price rise was still high and the central bank might refrain from this kind of a move later this month.  The wholesale-price inflation for September is expected on Monday, which will provide another crucial data for the RBI to decide on its monetary action.

Cumulatively, growth in factory output, as measured by the Index of Industrial Production (IIP), stood at 0.4 per cent in the first five months of this fiscal, sharply lower than 5.6 per cent in the corresponding period of 2011-12. Of five months, industrial production fell in three months-- April, June and July.  For the month of July, industrial growth was revised down from 0.1 per cent  to (-) 0.18 per cent.

August is the only month this fiscal so far, in which all three broad categories—mining, manufacturing and electricity—showed growth.

In August, both manufacturing and mining growth stood highest for this fiscal at 2.9 per cent and 2 per cent, respectively.

In quite contrast, electricity generation expanded at the slowest pace for this fiscal--1.9 per cent in August. Electricity generation could weigh heavily on the industrial sector, warn industry chambers--Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry.

Prompted by industrial growth numbers in August, Prime Minister's Economic Advisory Council chairman C Rangarajan told reporters here," IIP numbers do indicate that some turnaround is happening as far as manufacturing is concerned."

Within manufacturing, capital goods production fell at the slowest rate of this fiscal in August—1.7 per cent. The capital goods production, crucial for industrial performance in coming months, contracted as high as 28.1 per cent in June and 21.5 per cent in April.

Except for capital goods, all other categories—basic goods, intermediate goods and consumer goods-- showed expansion. Particularly, consumer goods sector grew by 5 per cent in August, higher than 2.1 per cent in the same month last year. Consumer durables rose 4 per cent in August compared to 5.5 per cent a year ago and consumer non-durables by 5.8 per cent against contraction of 0.7 per cent.

However, within consumer durables passenger cars production fell 17.5 per cent, the data showed.
The further break-up showed that 13 industrial categories of the total 22 grew in August against just eight in July.

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