Sparks fly as an employee uses an angle grinder inside an Ishwar Engineering Co. factory in Mumbai, Maharashtra (Photographer: Dhiraj Singh/Bloomberg)  

India’s Industrial Output Rises Most In Six Months

India’s factory output rose at its fastest pace in six months in August as manufacturing activity expanded after the implementation of the Goods and Services Tax.

The recovery for the second straight month was led by a pickup in electricity generation and favourable base effects in refinery products and coal production.

The Index of Industrial Production rose 4.3 percent in August from the revised 0.9 percent in July as dealers and wholesalers began restocking inventories following the implementation of the Goods and Services Tax, according to data from the Central Statistics Office. A Bloomberg poll of economists had expected IIP to grow at 2.6 percent during the month.

“The sharp upturn in IIP may be indicative of the restocking exercise before the commencement of festive season in the economy,” CRISIL said in a research note.
India’s Industrial Output Rises Most In Six Months

Growth in factory output also mirrors the uptick seen in infrastructure sector growth. Core industries, which form 40 percent of the index, rose 4.9 percent over last year in August.

Cumulatively, however, industrial production in the April-August period was up 2.2 percent, much lower than the 9.6 percent growth seen in the year-ago period.

India’s Industrial Output Rises Most In Six Months

Mining output rose 9.4 percent in August, compared to a 4.3 percent contraction it had seen in the same period last year. Manufacturing activity improved 3.1 percent, while electricity generation rose 8.3 percent.

The use-based classification of industrial output showed that production of primary goods in August rose 7.1 percent year-on-year while capital goods production climbed 5.4 percent. The infrastructure and construction goods category saw a 2.5 percent growth in output. Consumer non-durables grew at 6.9 percent, while consumer durables grew 1.6 percent.

The key support to IIP growth has come from mining and electricity, Sunil Kumar Sinha, principal economist at India Ratings & Research said.

This shows that manufacturing is still down and out. Even more disheartening is the growth of consumers durable at just 1.6 percent in August.
Sunil Kumar Sinha, Principal Economist, India Ratings & Research

Key Highlights

  • Manufature of pharmaceuticals, medicinal chemical and botanical products continued to rise, growing 16.5 percent over last year.
  • Computer, electronic and optical product manufacturing rose 25 percent in August.
  • Coke and refined petroleum production rose 2.8 percent.
  • Manufacture of motor vehicles increased 8.2 percent
  • Electrical equipment manufacturing fell 9 percent.
  • Manufacture of machinery and equipment went up 10.2 percent over August last year.

Watch Upasna Bhardwaj, economist at Kotak Mahindra Bank discuss the fineprint of the inflation and industrial production numbers and the way forward for the economy.