Industrial output as measured by Index of Industrial Production (IIP) surged to a nine-month high, growing at 5.0 per cent in February almost double than 2.6 per cent it notched up in January. The rate of growth, which is calculated at base year 2004-05, was in contrast with activity figures of eight core industries released about a fortnight ago. The index of eight core industries, which constitutes 38 per cent of the IIP, slumped to lowest in four months, growing 1.4 per cent in February.
During April-January 2014-15, industrial output grew 2.8 per cent.
The IIP data provide evidence that while industrial growth is picking and growth in core industries, which supply crucial inputs to other sectors, remains to be on the downside. Results of the survey of professional forecasters released by RBI on Tuesday show better prospects for IIP in the coming months, which is set to average 2.5 per cent for the last quarter of 2014-15 financial year with industrial growth averaging 4.5 per cent by the end of this fiscal. The government is banking on a pick-up in the industrial sector to kick-start growth under its Make in India project.
The mining sector saw a rise in output after declining last month (2.5 per cent against -2.8 per cent growth in January) while manufacturing sector grew at a faster pace at 5.2 per cent (3.3 per cent in December). Electricity generation, gained some momentum expanding at 5.9 per cent in February up from 2.7 per cent in November.
The cumulative growth in these three sectors during April-February 2014-15 over the corresponding period of 2013-14 was 1.5 per cent, 2.2 per cent and 9.2 per cent, respectively.
In terms of industries, 15 of the 22 industry groups in the manufacturing sector showed positive growth during the month.
According to use-based classification, output expanded in all three sectors, basic goods output was up 5.0 per cent, capital goods was up 8.8 per cent and intermediate goods was up by 1.1 per cent after contracting in the last month. The rise in capital goods output is encouraging as it is a lead indicator of business activity picking in the near term.
Within the consumer goods basket, consumer durables declined by 3.4 per cent and consumer non-durbales showed an increase of 10.7 per cent, the overall consumer goods saw an increase of 5.2 per cent in February.
The recent surge in the industrial output is in line with the business expectation surveys which are putting economy on a higher growth trajectory in the coming months. Though industrial output is seen growing, it is still in contrast with figures on industry from the new GDP. “The industrial sector would have grown by about 9 per cent and manufacturing by around 11 per cent in Q4 to meet the CSO’s projections for 2014-15 as a whole, which looks ambitious on the basis of information available so far,” RBI said in monetary policy report released on Friday.
The central bank held policy rate last week at 7.50 per cent, indicating that though the central bank holds an accommodative stance of monetary policy, further easing would be predicated on CPI data and better transmission mechanism from banks. Banks which had held on to higher loan rates despite two rate cuts of 50 bps in RBI finally cut rates by 0.15 per cent this week.
Inflation figures which are central to the RBI’s rate trajectory will be releasing on April 13 and are expected to inch up higher due to rising prices as unseasonal rains destroyed rabi crop.
(Edited by Joby Puthuparampil Johnson)