Factory output recorded a sharp rebound in August to touch a nine-month-high growth of 4.3 per cent during the month against a downward revised 0.9 per cent growth recorded in July, according to data released by the Central Statistics Office (CSO) Thursday.
The surge in industrial production in August was led by the 3.1 per cent expansion in the manufacturing sector, primarily as restocking of manufactured items picked up steam after the introduction of the Goods and Services Tax (GST) and prior to the festive season.
The mining and electricity sectors too recorded robust performances on the back of higher coal and thermal electricity. August’s IIP print this year was a tad higher than the growth of 4 per cent in August 2016.
Meanwhile, retail inflation remained unmoved at 3.28 per cent in September from its revised figure for August, according to Consumer Price Index-based inflation data also released today. The provisional retail inflation for August was 3.36 per cent.
While the sequential improvement in industrial growth in August 2017 was broad-based, with all three sectors — mining, manufacturing and electricity — and five of the six use-based industries (except infrastructure/construction goods) seeing a rebound in growth, what could remain a cause for worry for policymakers is that 13 of the 23 sub-sectors in the manufacturing sector (with a cumulative weight of 27 per cent in the IIP) witnessed a contraction in August 2017.
Economists predict that the August print may not be indicative of the trend in the coming months.
According to Aditi Nayar, Principal Economist, ICRA Ltd, “On a cautious note, this uptick in industrial growth may not sustain in September 2017, with 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.”
According to ICRA, 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 unfavourable base effect, we expect the IIP growth to ease in September 2017 relative to print of 5 per cent 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,” Nayar said.
Madan Sabnavis of Care Ratings said that while the restocking process would keep adding to the momentum, “some momentum of infra sector could be affected in case there is no additional fiscal stimulus as the government has frontloaded its capex in the first half”.
The Reserve Bank of India, in its latest monetary policy review last week, had kept policy rates unchanged and had marginally upped the inflation outlook to 4.2-4.6 per cent for the second half (October-March) of the financial year. The central bank also cut its economic growth projection based on gross value added (GVA) to 6.7 per cent for 2017-18 from 7.3 per cent estimated earlier citing the sluggish growth in foodgrains production, adverse impact of implementation of the GST on the industries and weak consumer confidence.
The International Monetary Fund (IMF) on Tuesday also cut its growth forecast for the Indian economy by half a percentage point to 6.7 per cent for 2017-18, blaming the lingering disruptions caused by demonetisation of high value currencies last year and the rollout of the GST.