INDUSTRIAL GROWTH CONCERNS...!!!

Industrial growth falters

Friday's data present a mixed picture - while CPI inflation falls to 7.8%, IIP growth of 0.5% and low indirect tax collections remain concerns

BS Reporter  |  New Delhi  

September 13, 2014 Last Updated at 00:40 IST

In July, India's industrial growth fell to 0.5 per cent, the lowest this financial year, owing to contraction in manufacturing after three months, official data showed on Friday. While industrial growth in June stood at 3.9 per cent, it was 2.6 per cent in July 2013.

For the first four months of this financial year, the Index of Industrial Production (IIP) expanded 3.3 per cent, against contraction of 0.1 per cent in the corresponding period last year. The rise in IIP in the April-June period was primarily due to a low base.

In August, Consumer Price Index (CPI)-based inflation fell to 7.8 per cent from 7.96 per cent in July. During this period, CPI-based food inflation, however, rose from 9.36 per cent to 9.42 per cent. It is expected the sub-normal monsoon this year will raise food inflation further.
While food inflation rose, core inflation (which does not take into account food and fuel inflation) declined to 6.89 per cent in August (the lowest since the series was launched) from 7.41 per cent in July, said a note by YES Bank. This showed pressure on inflation was from food items alone, as inflation for fuel fell to 4.15 per cent in August from 4.47 per cent in June.

The Reserve Bank of India is targeting CPI-based inflation of eight per cent by January, 2015.

If excise duty collections are any indication, the outlook for the IIP for August isn't bleak. In August, excise duty collections rose eight per cent, against 7.5 per cent in July. During the same period, overall indirect tax collections rose from 4.9 per cent to nine per cent. But this growth, as well as that in the April-August period (4.6 per cent) pales in comparison to the 20 per cent pegged in Budget 2014-15. July IIP data didn't have a one-to-one relation with excise duty collections.

"It (IIP data) is not such a negative surprise for us. We were expecting one per cent growth, but it turned out to be 0.5 per cent. Sustaining IIP growth at 3.5 per cent was difficult. The recovery from the second half will be meaningful," said YES Bank chief economist Shubhada Rao.

The IIP for July was primarily dragged down by manufacturing, which contracted one per cent, against 2.4 per cent in the previous month. Of the 22 manufacturing sub-groups, 10 saw contraction, against seven in June.

Consumer durables contracted 20.9 per cent, against 23.4 per cent in June, even as automobile sales are seen rising. Consumer non-durables rose just 2.9 per cent in July, against 4.8 per cent a month earlier. To assess any positive impact on both categories of consumer goods, one has to wait for the festival season to begin.

The capital goods segment contracted 3.8 per cent in July, against 23.26 per cent in the previous month. This segment has traditionally been volatile.
"The disappointing IIP growth and the contraction in capital goods output in July reinforce our view that the pick-up in GDP (gross domestic product) growth in the June quarter did not signify the start of a broad-based economic revival," said Aditi Nayar, senior economist, ICRA.
For the quarter ended June this year, India's economy grew at a two-year high of 5.7 per cent, prompting the finance ministry to exude confidence that this financial year, growth would be 5.8 per cent, against sub-five per cent growth in the previous two financial years. Nayar projected FY15 GDP growth at 5.3-5.5 per cent.

Rao said while she was watchful of the emerging trend in the consumer goods segment, her optimism on a gradual improvement in the Indian economy in FY15 remained intact. "We believe the government's policy measures, amid a revival in the investment sentiment, are likely to guide a recovery in industrial production during the second half of 2014-15," she said.
In July, only the basic goods segment and the electricity sector provided a boost to the IIP. While basic goods rose 7.6 per cent, against 9.8 per cent in June, generation in the electricity sector increased 11.7 per cent, against 15.7 per cent in June. The mining sector expanded 2.1 per cent, against 4.54 per cent in June. Continued uncertainty over coal block allocations might dampen sentiment in the sector further.

OTHER INDICATORS

• HSBC Purchasing Managers' Index (PMI) for manufacturing down to 52.4 points in August from 53 points in July
   
  • PMI services down to 50.6 points in August from 52.2in July
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  • Excise duty collections rise to 8% year-on-year in August from 7.5% in July
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  • Customs duty collections increase to 9.9% in August from 0.2% in July
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  • Services tax collections rise 9% in August from 8.4% in July
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  • Overall indirect tax collections rise 9% in August from 4.9% in July
  • • http://www.business-standard.com/article/economy-policy/industrial-growth-falters-114091300020_1.html