Industrial growth rebounds to 6-month high in August

Consumer price inflation falls to six-month low in September, but still too high for RBI to cut rates

Backed by a good show by consumer goods and a slight recovery in the mining sector, industrial production beat market expectations to grow by a six-month-high rate of 2.7% in August, after two months of contraction. According to the official data released today, a fall in the pace of deceleration in the capital goods sector also played a major part in the overall industrial recovery.

Even as the growth in August was lower than the 3.4% in the month last year, given the sharp slowdown in the industrial sector in the recent months, the 2.7% growth could be seen as a sign of a gradual recovery if the trend persisted, economists said.

 

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

Another set of data released by the government today showed that the retail-price inflation fell to a six-month low of 9.73% in September. At the outset, this may be seen as a leverage for RBI to go for a rate cut, but economists believe, the rate of price rise is still high and it is too early for the central bank to go for a move like that. Data on wholesale-price inflation for September, which would provide another crucial determinant for RBI’s monetary action, are expected on Monday.

Cumulatively, growth in factory output, as measured by the Index of Industrial Production (IIP), stood at 0.4% in the first five months of this financial year, much lower than the 5.6% recorded in the corresponding period last financial year. Among these five months, industrial production had fallen in three — April, June and July. For July, industrial growth was revised down from 0.1% to (-) 0.18%.

August has been the only month this financial year so far that has seen growth in all three broad categories — mining, manufacturing and electricity. In the month, growth in both manufacturing and mining stood at the highest level this year, at 2.9% and 2%, respectively.

In contrast, electricity generation in the month expanded at the slowest pace this year — by 1.9%. Industry chambers have warned that this could weigh heavily on the industrial sector.

Prime Minister’s Economic Advisory Council Chairman C Rangarajan today said: “IIP numbers do indicate that some turnaround is happening as far as manufacturing is concerned.”

Within manufacturing, capital goods production in August grew at the slowest rate this financial year of 1.7%. Capital goods production, crucial for industrial performance in the coming months, had contracted by as much as 28.1% in June and 21.5% in April.

Except capital goods, all other categories — basic goods, intermediate goods and consumer goods — expanded in August. The consumer goods sector grew by 5%, higher than the 2.1% seen in the same month last year. Consumer durables rose four%, compared to 5.5% a year ago; and consumer non-durables expanded by 5.8%, against a contraction of 0.7% in August last year. However, within consumer durables, production of passenger cars fell 17.5%, the data showed.