Despite remaining elevated, industrial output growth moderated slightly in July to 6.6 per cent as growth in the capital goods segment cooled suddenly after performing well for months.
In the previous month of June, the Index of Industrial Production (IIP) grew at a slightly higher 6.8 per cent, up from 3.92 per cent in May. The stable pace of growth can be attributed mainly to the manufacturing segment, constituting the bulk of the index at 77.6 per cent, growing by 7 per cent, marginally up from the 6.9 per cent in June.
Among the 23 sub-sectors within manufacturing, only six recorded a year-on-year contraction, up from four in June. Industries such as electronics, auto, pharma, food, metals, non-metallic products, etc, continued to do well. Economists said that higher growth rates within manufacturing resulted due to favourable base effect of negative growth in 2017 for manufacturing and the overall industry.
On the other hand, growth in mining output halved to 3.7 per cent in July, down from the 6.5 per cent in June, in line with expectations. Subsequently, growth in electricity generation was at 6.6 per cent, down from the 8.5 per cent rise in June.
“IIP growth has come in at a steady 6.6 per cent, which is higher than our forecast of 5 per cent. Cumulative growth is 5.4 per cent, which is encouraging and indicates that moving in the range of 5-6 per cent for the year would be possible on a low base. We must be, however, cautious on these numbers as the low growth of 1 per cent last year in July and 1.7 per cent (April-July) has contributed to this better picture," said Madan Sabnavis, chief economist at CARE Ratings.
Economists suggest that current rates sustaining over the next 2-3 quarters, will lead to the 5-6 per cent mark for the year, which will be a significant recovery.
The sensitive capital goods segment, which connotes investments, saw output rise by only 3 per cent, paltry compared to the 9.6 per cent rise in June. "A sequential loss of momentum in capital goods, primary goods and intermediate goods was largely offset by a healthy uptick in consumer durables, consumer non-durables and construction goods," Aditi Nayar, Principal Economist at ICRA said. Nayar added that an adverse base effect is likely to continue to weigh upon the growth of capital goods in the next few months.
Similarly, growth in the infrastructure/construction goods segment also picked up in June at 8.5 per cent, much ahead of the 4.9 per cent seen in the previous month when cement and steel production had taken a dip.
"Looking ahead, the GST rate cuts and the upcoming festive season may support the momentum of growth of consumer durables, even as possible price rise related to the currency depreciation and higher commodity prices may curtail demand to an extent," she pointed out.
In July, the consumer durables segment showed signs of firmly escaping the spell of low growth and contraction seen over the past few months, with growth jumping more than 14.4 per cent.