Industrial Growth takes a U-Turn to Rise 1.2%
Industrial production growth unexpectedly recovered into the positive zone in May after shrinking in the previous month, but the muted growth showed just a tepid recovery. The Index of Industrial Production (IIP) rose1.2% in May from a year earlier, government data released on Tuesday showed. The revised reading for April was -1.3%.
Manufacturing output grew a marginal 0.7% in May. Electricity generation was up 4.7%, while mining output rose 1.3%. “Industrial recovery will remain sluggish in the near term but once the impact of the monsoons sets in by the third quarter, along with that of the Pay Commission, there might be some improvement in consumption,” said Devendra Pant, chief economist at India Ratings & Research. “Investment activity will not revive unless consumption demand improves.”
Production of capital goods, an indicator of investment activity, fell12.4% in May, marking another month of sharp contraction. “Capacity utilisation is at low levels and there is no visible confidence on demand picking up … It is unlikely that a sustained improvement in capex will happen,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.
Consumer goods production rose 1.1% in May, while consumer non-durables output – an indicator of rural demand – declined 2.2%. Production of consumer durables was up 6%, confirming the ongoing trend of contrasting robust urban demand.
Passenger cars sales – another indicator of industrial activity – fell 5.18% in June and were marginally down in May.
“The growth in manufacturing remains subdued and is a cause for concern. The weak consumer and investment demand points to the fact that the recovery is going to be slow in manufacturing and the need for addressing more deep-rooted structural issue,” business chamber FICCI said in a news release.
Monsoon rains could improve rural demand. As on July 12, the total rainfall was 4% above normal, in line with the forecast for the full June-September rainy season.
With retail inflation accelerating to a 22 month high at 5.77% in June, the Reserve Bank of India is not likely to cut interest rates in August to boost demand.
The April IIP number was revised to a 1.3% decline from the previously reported 0.8% fall. Cumulative industrial output in April May was down 0.1% from a year earlier, marking a dismal start to the new fiscal year.