Independent survey of manufacturing sector indicates that uptrend continued in June with factory output expanding for the eighth successive month, reports Team IFM
New Delhi, July 18: India’s industrial output grew to a 19-month high in May, topping analysts’ predictions and goading corporate India to talk of a recovery “on the anvil”, while an independent survey of the manufacturing sector said the uptrend continued in June to register the strongest production growth since February.
According to the Central Statistical Office (CSO), the Index for Industrial Production or IIP – a measure of the country’s manufacturing, mining and energy sectors – went up 4.7 percent in May, the highest since October 2012. It had contracted 2.5 percent in May last year.
The data, released a day after Finance Minister Arun Jaitley presented the new government’s maiden budget on July 10, was doubly surprising as output growth in the eight core industries, including coal, crude and fertiliser – constituting 40 percent of the index – nosed up only 2.3 percent year-on-year.
Month-on-month, the overall index rode better outputs in the manufacturing, mining and energy sectors as well as capital goods to expand 3.7 percent, after notching a 3.4 percent rise in April – the first such spurt since January.
Manufacturing and mining, which had shrunk in May 2013, swelled 4.8 percent and 2.7 percent, respectively, while electricity was up by 6.3 percent.
Compared to the annualised growth of 4.7 percent in the month under review, a Reuters poll of more than 30 economists, conducted over July 1-9, forecast the index to expand 3.8 percent, which was based on the preceding month’s incline of 3.4 percent. The forecast by a CNBC-TV18 poll of analysts was even lower at 3.76 percent.
Rupa Rege Nitsure, chief economist at Bank of Baroda, was circumspect in her assessment of the data. “It shows that things have started improving,” she told Reuters, but at the same time, had a word of caution. “Just going by this data one cannot say the trend will necessarily be improving henceforth, given the risks of a deficient monsoon and its impact on the whole consumption side of the economy,” Reuters quoted Nitsure as saying.
The Indian corporate sector too was cautiously upbeat. Rana Kapoor, president of industry body Assocham, dubbed the latest industrial output data a “good sign”, and said if the trend continued, it would help GDP grow above 5.5 percent in the fiscal ending March 31, 2015. “However,” Kapoor also noted, “monsoon can be a dampener.”
In a separate development, an HSBC survey of India’s manufacturing sector found factory output increasing for the eighth successive month in June, with incoming new orders registering moderate expansion but growth in export orders hitting a three-month high.
“Things are gradually improving in India’s manufacturing sector,” said Frederic Neumann, co-head of Asian Economic Research at HSBC. “Output picked up in June, supported by growing order flows, especially from overseas.”
Meanwhile manufacturing, which constitutes over three-fourth of India’s industrial output index, went up 4.8 percent in the month under review as against a fall of 3.2 percent a year ago. Mining output too grew, by 2.7 percent, compared to a contraction of 5.9 percent in May 2013.
The government data also showed a slightly better electricity output, which went up 6.3 percent this May as against the increase of 6.2 percent the same month last year.
The growth in the three sectors during April-May over the corresponding period of 2013-14 was 2.6 percent, 3.7 percent and 9 percent, respectively. In other words, if the next tranche of data shows the trend continuing in June, the second quarter of this year will boast of better numbers than that of last fiscal.
“Rise in industrial production for the second month in a row provides a glimmer of hope that the economy could be bottoming out and recovery could be on the anvil,” said Chandrajit Banerjee, director general of leading industry body CII.
In terms of industries, 16 out of the 22 industry groups in the manufacturing sector grew as compared to the corresponding month last year.
The industry group radio, TV and communication equipment showed the biggest shrinkage, of 40.3 percent; also to fall was motor vehicles, trailers and semi-trailers, which contracted 7.4 percent.
Under the use-based classification, the data showed, basic goods grew 6.3 percent year-on-year, capital goods by 4.5 percent and intermediate goods by 2.7 percent. Consumer durables and consumer non-durables also recorded growths – of 3.2 percent and 3.9 percent, respectively, with the overall growth in consumer goods being 3.7 percent.
“We anticipate a rebound in industrial production as the reform-oriented and forward looking budget would boost business confidence leading to turnaround of the investment cycle,” CII’s Banerjee said.
The CII director general’s wishes could well come true, with the HSBC survey indicating that the growth in the Indian manufacturing economy was maintained in June, with operating conditions improving for the eighth month in succession, “although modestly”.
“Greater domestic and foreign demand led companies to increase production levels further,” HSBC said. “Buying activity expanded at a faster rate, while employment continued to rise.”
Input cost and output price inflation also accelerated over the month, it said, but adding that in both cases, however, the rates of increase were below their respective long-run averages.
Output expanded at the fastest pace since February, with survey respondents indicating that growth reflected the signing of new contracts. “All three broad areas of the manufacturing sector registered higher production volumes, led by consumer goods producers,” the report said.
Additionally, it said new orders increased for the eighth successive month in June, with panellists reporting stronger demand from both domestic and foreign clients. And though the pace of expansion remained moderate, it said the sharpest rise was noted at consumer goods firms.
June data highlighted a marked and accelerated expansion of new export orders received by Indian manufacturers. Having surpassed the series average, the rate of growth was at a three-month high.
For the ninth consecutive month, manufacturing employment rose in tandem with overall sectoral expansion, though the rate of job creation was marginal and slower than in the prior month; panellists reporting higher payroll numbers attributed this to the signing of new contracts.
The overall increase in staffing levels was centred on the consumer goods category, the report added.
“The muted pace (of expansion) will suit the Reserve Bank, since input and output prices are rising as well, faster growth would only stoke inflation and require tightening,” said HSBC’s Neumann.