Industrial production shrank 0.7% in August —recovering from a 2.5% fall in the previous month, but still worse than a 2% expansion in June — as manufacturing and mining continued to disappoint, dashing hopes of a rebound yet.
What is really worrisome is that capital goods — a gauge for fixed corporate investment — contracted for 10 months in a row, and without the 22.2% fall in this segment, the index of industrial production (IIP) would have risen 2.5% in August.
Interestingly, within the capital goods segment, rubber insulated cable — which witnessed a massive 86.2% contraction —alone served to shelve slightly over 3 percentage points off the IIP. Even consumer non-durables output grew just 0.1%, after witnessing contraction for nine consecutive months through July, suggesting subdued rural demand.
The marginal growth in the overall consumer goods segment (it grew 1.1% in August and 0.9% in the April-August period) has also been supported by the consumer durables sector in recent months, which was reflected in good auto sales as well. Although the country’s excise duty collections surged an impressive 48.8% during the April-August period from a year earlier, much of the rise was attributed to rate hikes.
However, analysts say with the government expecting a record farm harvest this year following good monsoon showers, rural demand could revive in the coming months, brightening prospects of an industrial recovery.
“Consumption demand is set to improve appreciably in the coming months, with the kharif harvest forecast at record levels, revised pay and pensions being implemented by the Central Government and the impending festive season,” said Aditi Nayar, senior economist at Icra. However, she cautioned that while the confluence of such factors should aid higher volume growth in various consumer goods sectors in the second half of the current fiscal, its impact on the IIP may be partly blunted by an adverse base effect for consumer durables.
Some analysts have also cautioned against reading too much into the IIP data, based as they are on the old series, with 2004-05 as the base year. They expect some revisions once the new series data, with 2011-12 base year, are released.
Mining dropped 5.6% in August, compared with a 0.9% rise in the previous month, thanks to heavy downpours of rains that affected coal production. Manufacturing continued to falter, with a contraction of 0.3% in August, compared with a 3.5% fall in the previous month.
The massive plunge in insulated cables output was also reflected in the index for electric machinery, which dropped by as much as 49.4% in August, also recording tenth consecutive month of contraction.
Electricity generation rose just 0.1% in August, compared with 1.6% in the previous month. Analysts blame the financial situation of some discoms and its impact on the offtake of power for the lack-lustre performance of the electricity sector.
Basic goods rose 3.2% in August, while intermediate goods inched up 3.6%, keeping in pace with the growth trend noticed in the index for six infrastructure industries that account for 38% of the IIP. These infrastructure sector grew 3.2% in August, against 3% in the previous month.
