A contraction in manufacturing output dragged industrial production growth back in to the negative zone in April, rekindling concerns if a turnaround has indeed taken place and also raising fresh worries over the quality of the data.
Factory output shrank 0.8 per cent in April, its first decline in three months, official data showed. It had expanded three per cent in April last year.
“IIP (Index of Industrial Production) numbers are disappointing,” said Soumya Kanti Ghosh, chief economic advisor, State Bank of India. Pointing out that the IIP numbers are based on the old series, he said that the IIP data seems at odd with the “decent” growth in net sales, earnings before tax and profit after tax seen in the fourth quarter corporate results in segments such as auto, ceramics, plastic products and pharma.
“It is becoming very difficult to predict as the numbers are notoriously volatile.”
Manufacturing sector, which constitutes over three-fourths of the IIP, contracted 3.1 per cent in April compared to a growth of 3.9 per cent in same month last year. Capital goods output declined nearly 25 per cent in April, indicating that the investment climate continues to remain subdued. It had grown 5.5 per cent during the same month last year.
The contraction in the consumer non-durable segment’s output, of 9.7 per cent, pulled down the overall consumer goods sector. It dipped 1.2 per cent against growth of 2.8 per cent in April 2015. Consumer durables production, however, continued to do well. It grew 11.8 per cent, faster than 1.3 per cent a year ago, showing a revival in demand.
The sectoral break-up shows that electricity generation growth quickened to a one year high of 14.6 per cent against the marginal decline of 0.5 per cent a year ago.
Mining The mining sector improved with its output growing 1.4 per cent against the contraction of 0.6 per cent a year ago.
“IIP is not capturing the changes taking place in the economy,” former Director General of the Central Statistics Organisation Ashish Kumar said.
“IIP’s base of 2014-05 has become too old.” He also explained how the IIP is a very crude measure. He gave the example of cars to illustrate how IIP basket treats all cars alike without differentiating for value addition in production.
“In the IIP, one unit of an Audi car is same as one unit of Alto…so, if Maruti starts producing fewer Altos and instead increases its output of Desire, that change of higher value addition will not get captured in the IIP, though the company’s balance sheet will show it.”
Reflecting this deficiency, IIP data has been inconsistent with GDP data: While the CSO data put real manufacturing growth at 9.3 per cent in the January-March period, it was at odds with the IIP data for the same quarter, which showed a mere increase of 0.2 per cent.
