Industrial output recorded a growth of 7 per cent in June on account of higher output in mining, manufacturing, power generation segments and a low base growth, according to data released by the Central Statistics Office (CSO) on Friday. Industrial output, measured by Index of Industrial Production (IIP), contracted by 0.3 per cent in June 2017. The cumulative growth for April-June 2018 stands at 5.2 per cent over the year-ago period when it was 1.9 per cent, the data showed.
The manufacturing sector, which constitutes 77.63 per cent of the index, grew by 6.9 per cent in June, against 0.7 per cent decline in the year-ago month. Analysts said the growth rate is higher than expectations but it does not indicate a broad-based recovery. Power generation segment grew 8.5 per cent in June against 2.1 per cent growth a year ago. The mining sector output recorded 6.6 per cent in June against 0.1 per cent in June 2017.
“June 2018 IIP growth was much higher than consensus estimates. All sectors contributed to industrial recovery. While mining and manufacturing growth was more in line with the growth observed in core infrastructure industries, June 2018, IIP electricity growth at 8.5 per cent was more than twice of electricity sector growth as per core industries data (4 per cent). Strong growth was supported by base effect, in run-up to GST rollout, IIP manufacturing growth contracted by 0.7 per cent in June 2017 and overall IIP growth contracted by 0.3 per cent,” said DK Pant, Chief Economist, India Ratings.
Consumer durables growth at 13.1 per cent was a 32-month high and was supported by 3.5 per cent contraction in consumer durable output in June 2017. Factory output growth measured in terms of the IIP was revised upwards for May at 3.9 per cent from previous estimate of 3.2 per cent.
Pant said it will be “too early to term it as a broad based industrial recovery” as intermediate goods growth is lagging.
“While primary goods, one of the lead indicators of industrial growth, is exhibiting good growth and gives confidence of sustained industrial recovery, intermediate goods, other lead indicator, does not give much confidence on sustainability of industrial growth. Nonetheless, second consecutive year of near normal monsoon, higher MSP and government focus towards infrastructure and housing is likely to keep demand momentum strong,” he said.
“The encouraging news is the jump in the production of capital goods and construction goods. Even on a low base of last year, this could be the reflection of the positive investment trend, in sectors such as roads, railways and affordable housing. Spike in consumer durables demand is also noteworthy,” said CII, director general, Chandrajit Banerjee.
IIP data for July will be released on September 12. “It does appear that notwithstanding the low base effect growth has picked up which bodes well for the full year. If these rates are sustained in the next 2-3 quarters, we can hope to get to the 5-6 per cent mark for the year which will be a significant recovery,” said Madan Sabnavis, chief economist at Care Ratings.