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June industrial growth at 8-month high

Business Standard:  August 16, 2016

 

New Delhi: Industrial growth accelerated to an eight-month high in June, aided by production of electricity, mining, commercial vehicles and mobile phones.

The growth was 2.1 per cent, as against 1.1 per cent growth in May, on the back of robust electricity and mining production, showed data issued by the Central Statistics Office on Friday. The manufacturing sector, which contributes 75 per cent to the Index of Industrial Production which measures the industrial output, grew by a muted 0.9 per cent during the month, slightly higher than 0.6 per cent the previous month. Manufacturing had declined 5.2 per cent in the corresponding month of the previous year.

"Though manufacturing displayed the weakest performance among the industrial sectors in June, the year-on-year rise in  volumes for a second month in a row provides a sliver of comfort,” said Aditi Nayar, senior economist at ratings agency ICRA.

Industrial growth in April-June, first three months of the financial year, was 0.6 per cent as against 3.3 per cent in the corresponding period last year. The government has estimated the economy would expand by 7-7.75 per cent in 2016-17.

Growth is expected to get a boost from an above-normal monsoon.

Electricity was the top contributor of growth, with output expanding 8.3 per cent in June, against 4.7 per cent in May. Mining grew by 4.7 per cent, as against  1.4 per cent the previous month. The Reserve Bank of India maintained its key policy rate at its review earlier in the week, at 6.5 per cent. The central bank also retained its growth forecast of the economy at 7.6 per cent for 2016-17.

Capital goods, the highly volatile component of the index, saw output fall for an eighth straight month at 16.5 per cent in June, indicative of persistently weak investment activity.

“We are concerned that the continued slowing in private sector investment hints at downside risks to the economic outlook for 2016-17. The banking sector clean-up, while positive in the medium term, continues to weigh on private sector sentiment and credit growth,” said Firat Unlu, lead analyst (India), The Economist Intelligence Unit.

The onus is on the government to inject additional capital while ensuring lending standards improve, he added. The consumer durables segment posted a 5.6 per cent growth in June, slightly lower than 5.9 per cent in May. The segment grew 7.6 per cent in the first quarter, suggesting an improvement in rural demand on account of good rain. Consumer non-durables, however, posted a weak one per cent growth but it was a turnaround of sorts, compared to the contraction in the previous two months.

“With the monsoon turnout and kharif sowing suggesting a pick-up in rural demand is on the anvil, the volume growth for consumer non-durables should strengthen in the second half of FY17," Nayar said.

Only four of the 22 manufacturing sub-sectors fell in June, against eight in May.

Radio, TV and communication equipment showed the highest positive growth of 15.8 per cent, followed by 8.8 per cent in motor vehicles. Lubricating oil and woollen carpets grew 62.2 per cent and  39 per cent, respectively. Mobile sets' production grew 25.3 per cent.

Car sales grew by 9.7 per cent, while passenger vehicles posted an even more robust 16.8 per cent growth  during the month, according to the Society of Indian Automobile Manufacturers.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.