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5-month high: Capital goods, manufacturing push July factory growth to 4.2%

Factory output climbed to a five-month high of 4.2 per cent in July, with capital goods and manufacturing sectors posting robust growth, corroborating the government’s claim that the economic growth is gathering pace despite the slower-than-expected growth in GDP in the first quarter of 2015-16. The industrial production had grown 3.8 per cent in June. […]

By: ENS Economic Bureau | New Delhi | Updated: September 12, 2015 3:58:35 am

Factory output climbed to a five-month high of 4.2 per cent in July, with capital goods and manufacturing sectors posting robust growth, corroborating the government’s claim that the economic growth is gathering pace despite the slower-than-expected growth in GDP in the first quarter of 2015-16. The industrial production had grown 3.8 per cent in June.

According to the index of industrial production (IIP) data released by the Ministry of Statistics and Programme Implementation, while the manufacturing sector posted a growth of 4.7 per cent compared to a contraction of 0.3 per cent during July 2014-15, capital goods production stood at an impressive 10.6 per cent compared to a contraction of 3 per cent during the same period last year.

The mining sector also witnessed some improvement, growing 1.3 per cent compared to a negligible growth of 0.1 per cent.

“…growth is happening but at a very slow pace. There has been some momentum in the growth and is likely to continue for the remaining period of the fiscal but the IIP is likely to average between 3.5 per cent and 4 per cent for the current fiscal,” DK Joshi, chief economist, Crisil, said.

Auto sales in August reflect the growth in the manufacturing sector. With new launches, lower inflation, and decline in fuel prices, auto sales grew by 6.06 per cent to 1,63,093 units last month. This was the tenth consecutive month of growth in sales of passenger car in the domestic industry. The increase in the mining activity, reflected in the IIP, also contributed to increase in sales of commercial vehicles by 7.58 per cent.

The growth in capital goods production, meanwhile, indicates the government spending, Joshi said. The cumulative growth for the April-July period over the corresponding period stood at 3.5 per cent.

Credit rating agency Moody’s on Friday said that the continuing decline in wholesale price index-based inflation and with retail inflation slipping to a record low of 3.78 per cent in July, the Reserve Bank is likely to cut interest rate in its policy review on September 29. India Inc has been pitching for a rate cut to spur growth and investment.

In terms of industries, 12 of the 22 industry groups in the manufacturing sector witnessed growth during July as compared to the corresponding month of the previous year. The industry group furniture and manufacturing has shown the highest positive growth of 69.3 per cent, followed by 21.7 per cent in wearing apparel, dressing and dyeing of fur and 20.9 per cent in electrical machinery and apparatus.

During the month, consumer durables production posted strong growth of 11.4 per cent compared to a contraction of 20.4 per cent during the year-ago period. “Consumer durables growth is largely due to the auto sales. FMCG segment is still not performing well,” Joshi added.

Industries which showed decline include office, accounting and computing machinery, which contracted 14.8 per cent, followed by a contraction of 12.1 per cent in food products and beverages and a contraction of 9.5 per cent in publishing, printing and reproduction of recorded media.

The finance ministry on Friday said the manufacturing sector is slowly emerging as a leader of the industrial growth and the economy is improving steadily. The industrial production and Balance of Payments, along with GDP of first quarter point towards “steady improvement” in the economy, the ministry said in a release.

Economic affairs secretary Shaktikanta Das tweeted that improvement in IIP data for July to 4.2 per cent against 0.9% in the year-ago period is in line with steady improvement in economic growth.

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