Industrial output growth shot up in October, rising to an 11-month high of 8.1 per cent as manufacturing growth accelerated and capital goods production rose by the highest margin in the current financial year.
The two-other sectors of electricity and mining output also saw significant jumps in the latest month, data for which was released on Wednesday.
In October, growth in the Index of Industrial Production (IIP) had accelerated up from the 4.46 per cent growth in September. This is largely attributable to the manufacturing segment, which constitutes the bulk of the index at 77.6 per cent, growing by nearly 8 per cent in October, almost double the 4.61 per cent in September.
“The considerable uptick in industrial growth in October 2018, which is somewhat sharper than expected, reflects the impact of inventory adjustment to the later start to the festive season and a favourable base effect,” Aditi Nayar, principal economist at Icra, said.
“This is likely to be temporary, as portended by the considerable deterioration in the growth performance of the available lead indicators such as auto production, electricity generation and Coal India Limited's output in November 2018,” she added.
Of 23 sub-sectors within manufacturing, only two recorded a year-on-year contraction, down from seven in September. Industries such as auto, pharma, food, metals and non-metallic products, among others, continued to do well. Furniture and wood products remained the largest growth pullers.
“The liquidity shortage in the system, which should have affected the SMEs and auto sector, has not had any impact this month. Therefore, it would be instructive to observe if November would reflect the same. Also, with the base effect kicking in the reverse, growth will be pressured,” Madan Sabnavis, chief economist, CARE Ratings, said.
On the other hand, computer hardware production managed to see healthy growth after the government has pushed manufacturing in the sector on a sustained basis over the past six months, through a series of benefits and the phased manufacturing programme aimed to reduce imports of electronics goods.
The sensitive capital goods segment, which connotes investments, saw an output jump to 16.8 per cent, up from the much lower 6.5 per cent rise in the previous month. Driven by machinery and heavy transport, capital goods production has grown every month of the current fiscal year.
In August, consumer durables also rose by a high 17.2 per cent, whereas in July, the segment had shown signs of firmly escaping the spell of low growth and contraction seen over the first part of the year. Infrastructure goods stood out as the only use-based category recording a moderation in growth in October 2018 relative to the previous month, despite the sharp improvement in the expansion of cement output.
On the other hand, mining output rose by 7 per cent in October, against a marginal 0.1 per cent rise in September, in line with expectations.
As a result, electricity generation also rose. Generation grew 10.8 per cent in the latest month, up from the 8.23 per cent cent rise in September. But this may again go down as data from the Central Electricity Authority (CEA) indicates that the growth of electricity generation halved to 4.6 per cent in November as compared to October.