The country’s industrial production in August, as measured by the Index of Industrial Production (IIP), grew just 0.6% on-year, much slower than expected, and much lower than the 2.8% on-year growth in July, reaffirming the belief that structural issues related to manufacturing are yet to be sorted out.
The August factory output number surprised markets because the core eight sectors that have a 38% weighting in the IIP grew 3.7% on-year, better than 3.1% in July.
The manufacturing sector, which makes up for nearly three-fourths of the overall industrial production, contracted 0.1% on-year and 4% on-month – a contrast to the promising 3.16% on-year growth in July.
Analysts blamed the erratic and volatile capital goods segment which de-grew 2% on-year in August, after showing a strong 15.6% on-year growth in July.
Dhananjay Sinha, head, institutional research and economist, Emkay Global Financial Services, said that the IIP data reinforce the belief that manufacturing continues to remain weak.
“ Last month’s numbers were an aberration due to the strong growth shown by insulated cables that skewed the whole data,” said Sinha.
The mining sector which carries a weight of around 14%, too, reported a slight contraction of 0.17% on-year in August. The only saving grace was the electricity sector which makes up for the remaining 10% of industrial production – it grew 7.16% on-year.
The August data, however, continued to show a positive growth trend in the consumer non-durables segment that grew 5% as compared to 7% in July.
Sinha believes that the government’s effort to boost consumption either by spending more directly or by encouraging public sector banks to increase retail lending, has been aiding rural consumption. And this is likely to support volume growth for some consumer-oriented sectors.
Tirthankar Patnaik, strategist and chief economist, institutional research, Religare Capital Markets, feels that the 0.1% overall IIP growth in the April-August period remains weak, despite an improvement in the core sector, indicating that the broader economy is still weak.
However, experts do not foresee investments in the core industrial sector reviving anytime soon as the scope for rate cuts look bleak right now.
“ With elections round the corner, the inflation trajectory is likely to become more worrisome on account of the government’s populist measures,” said Sinha.
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