Weak July IIP signals stuttering revival

Industrial production in India sagged to a four-month low in July while rising food prices kept consumer price inflation high in August.

Index of Industrial Production (IIP) grew only 0.5% in July as against 3.4% in June, according to government data released on Friday.

This was due to 1% drop in manufacturing sector which constitutes 75% of the index.

On the retail inflation front, the numbers were not encouraging either.

The Consumer Price Index (CPI) inflation for the month of August was at 7.8% from 7.96% a month earlier.

Though the retail inflation numbers stayed below 8% for the third consecutive month, they were somewhat stubborn on account of high fruits and vegetables prices that pushed food inflation up 0.97% to 9.42%.

During April-July 2014-15, IIP recorded 3.3% growth, as against contraction of 0.1% in the same period of 2013-14. Within the IIP, manufacturing contracted 1% in July, compared with 3% growth a year ago. For April-July, the sector has grown at 2.3% compared with 0.1% contraction in the year-ago period.

Saugata Bhattacharya, economist at Axis Bank, said, "Industrial production is yet to pick up, so the growth figures are weak. But the contraction in July has to do with the base effect. The IIP numbers will pick up with the revival in economy and infrastructure projects coming on stream. But CPI is still a worry as food prices continue to be a problem. While it is expected to be on track this year, it may inch up next year."

Food inflation marginally rose to 9.42% as against 9.36% in the previous month.

Anis Chakravarty, senior director, Deloitte in India, said, CPI eased marginally to 7.8% based on lower fuel prices. Pressure on food still remains and will likely take till year end to play out.

"July IIP number show that mining and electricity and largely in line with expectations though manufacturing again disappoints. It is important that focus on manufacturing is intensified if industry numbers are to pick up. There are risks that electricity numbers may suffer in the coming months which can bring overall IIP down," Chakravarthy said.

The Union ministry of statistics in a release said among 12 out of the 22 industry groups, the manufacturing sector has shown positive growth during the month of July 2014 as compared with the corresponding month of the previous year. The industry group 'other transport equipment' has shown the highest growth of 17.1%, followed by 12.3% in 'basic metals' and 11.8% in other non-metallic mineral products'.

Debopam Chaudhuri, chief economist, ZyFin Research, said although it is quite disappointing to see a marginal growth of just 0.5% in the IIP for July, the data is known for its inherent monthly volatility. "Capital goods which registered a year-on-year growth of 23% in June 2014, fell sharply to (-) 3.8% in July 2014. This was a major pullback on the overall index alongwith consumer durables and non-durables. However, the overall growth observed between April and July is at 3.3% and is still better than (-) 0.1% attained same time last year. We are hopeful, of a rebound in manufacturing activities as demand picks up by end of current quarter," Chaudhuri said.

Fruits and vegetables continued to impact the CPI numbers. "We expect food inflation to rein in soon, with the Kharif produce for 2014-15 catching up with the levels of 2013-14. Currently, there is a 3% deficit compared to the previous year."