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Restocking after GST, festival season push IIP to nine-month high

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.

By: ENS Economic Bureau | New Delhi | Updated: October 13, 2017 7:15 am
Punjab Irrigation and Power Minister Rana Gurjit Singh and his wife, Rana Rajbans Kaur, took loans from the same three companies that paid a firm which, in turn, paid 50 per cent of the bid amount for two sand mines allotted to two former employees of the minister. Retail inflation, inflation March, India inflation, inflation March, IIP data, fuel inflation, industrial output, industrial growth India, Economy news, Indian Express

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.

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  1. G
    gopal
    Oct 13, 2017 at 9:16 am
    This statement "“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, " is wrong. The automobile sector one of the best growth in recent times. There was sizeable growth in all categories including tractors and commercial vehicles.
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    1. B
      BlahBlah
      Oct 13, 2017 at 8:14 am
      Didn't take much long for you to rain on the parade? Every positive data need a take down and every negative data needs a pump up. Great job IE...sarcasm intended
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      1. K
        KS KUMAR
        Oct 13, 2017 at 7:53 am
        Slaves who were spreading pessimism are silent.
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        1. J
          Joseph Mumbai
          Oct 13, 2017 at 7:46 am
          Indian Express pseudo seculars have no clue about economics. They are stuck in socialist muck and nepotism. A socialist feudal mindset. Where leaders are dynast. GST is a great jump for India into modern economic best practices. Anything new is uncomfortable in the beginning. Because old habits die hard. The dividends of GST are enormous. Ask any credible non communist economists.
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          1. V
            Vishal
            Oct 13, 2017 at 6:56 am
            GST will take a year or two to stabilize. It has taken the same in EVERY country, be it Australia, Canada or NewZealand. In every country where it was implemented, it has brought pain in the beginning, but long-term gains of increased tax revenues, less tax theft, and more formalization. But I guess the leftist "economists" don't care. I am surprised by some of the protestations against GST!
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            1. G
              George Cruz
              Oct 13, 2017 at 7:24 am
              Well said. The left oriented parties like the congress, the communists, the TMC, the SP, the BSP, the RJD are crying foul because these party corrupt leaders like Rahul Gan-dhi, Sitaram Yechury, Lalu Prasad, Mamata Begum, etc have lost huge amounts of black monies stashed in their backyard to avoid paying taxes to the Indian government.
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