New Delhi, Sept. 12: Factory output offered a welcome surprise in July — expanding 2.6 per cent after contracting for two straight months in the current fiscal.
The positive figure was in contrast to the near consensus forecast on the Street that industry is headed for the third straight month of contraction.
The surprise rise in output was fuelled by capital goods, which jumped 15.6 per cent, followed by consumer non-durables, electricity and manufacturing.
However, the turnaround in manufacturing was driven largely by an 83.6 per cent growth in “electrical machinery and apparatus” industry. Excluding this category, manufacturing output actually fell 0.9 per cent in July on a year-on-year basis.
Mining, consumer goods and consumer durables continued to flounder, putting a question mark on the durability of the sudden turnaround in industry.
“This is welcome, though it is too early to presume that a recovery is underway,” Chandrajit Banerjee, director-general of the CII, said.
The Index of Industrial Production for June was revised upwards to a decline of 1.78 per cent from a provisional 2.2 per cent dip in production. It contracted 2.8 per cent in May this year.
From April to July 2013, manufacturing output has fallen 0.2 per cent compared with a year ago. However, export-oriented industries such as textiles, leather products, refined petroleum and chemicals have managed to sustain positive growth.
According to a Crisil research report on IIP data, in the coming months, a weak rupee is likely to provide support to export driven industries that source inputs domestically.
However, a growth in export-oriented industries will not be sufficient to offset the slowdown in manufacturing that is dependent on domestic demand, Crisil said.
With private consumption growth falling, many of these industries have seen sustained contraction since April.
While a normal monsoon and consequent increase in rural incomes could push up consumption growth and thereby aid a recovery in domestic-demand driven manufacturing industries, a sustained revival will be contingent on a pick-up in investments by corporate houses, the report said.
Ficci secretary-general A. Didar Singh is, however, hopeful that festive demand will help manufacturing growth.
“The positive manufacturing growth for July, though over a low base, does indicate some signs of upturn in the sector as a result of certain initiatives taken by the government in the last few months. We hope that the manufacturing sector is able to achieve higher growth in the next few months, backed by festive demand and improved export prospects,” Singh said.
It was, however, too early to expect any upturn in investment activity yet, he added.
“To sustain the growth in consumer demand during festive months,” Singh said, “the government needs to take some bold measures such as reducing interest rates further and fast-track implementation of large projects such as industrial corridors”.
Factory output grew a mere 1.1 per cent in the last fiscal and played a major role in dragging down economic growth to a decade-low of 5 per cent.
Electrical machinery production jumped 83 per cent in July on the back of better orders for Indian power gear makers such as Bhel and L&T.
The July IIP figures were the strongest since March. During this month, the eight core sector industries, comprising more than one-third of IIP, grew at a four-month high of 3.1 per cent. Besides, merchandise exports, which would be reflected in IIP data, rose to an 18-month high of 11.6 per cent in July.
Among the 22 industry groups in the manufacturing sector, 11 recorded positive growth.
While industrial output data provided some relief, inflation still remains a worry.
Separate data released by the statistics ministry showed consumer price inflation remained high at 9.52 per cent in August, though it was marginally slower than 9.64 per cent in July.