To herald a recovery of sorts on the strength of turnaround in manufacturing sector in July

After staying in negative territory for a couple of months, industrial production relocated to positive zone with a growth of 2.6 per cent in July to herald a recovery of sorts on the strength of an apparent turnaround in the manufacturing sector.

Even as the 2.6 per cent growth in July in actual terms may be minimal in view of the low base of a contraction of 0.1 in July last year, the fact remains that it signals a much-awaited likely recovery from the contraction of 2.8 per cent in May and 1.78 per cent in June during the current fiscal year.

Although the cumulative IIP (Index of Industrial Production) growth during the April-July period this fiscal still remains negative with a contraction of 0.2 per cent, the heartening development is the improved performance of the manufacturing sector, which accounts for over 75 per cent of the index.

The IIP data released by the Central Statistics Office (CSO) here on Thursday revealed that the manufacturing sector grew by 3 per cent in July as compared to nil growth in the same month of 2012.

For the April-July period also, the cumulative growth for the sector showed an improvement. Despite being in the negative zone, the sector bettered its performance to show a contraction of 0.2 per cent this year as compared to a contraction of 0.6 per cent in same four-month period of 2012.

Robust growth incapital sector

The power sector’s performance also improved with the growth rate in electricity generation going up by 5.2 per cent in July as compared to 2.8 per cent in the same month a year ago even as the April-July output this fiscal grew 3.9 per cent compared to 5.5 per cent a year earlier.

More importantly, the capital goods sector, whose performance tracks industrial activity by way of demand for new machinery, witnessed a robust growth of 15.6 per cent in July as compared to a 5.8 per cent contraction in the same month of 2012.

Accordingly, capital goods production in April-July this fiscal also turned corner with a growth of 1.8 per cent as against a hefty contraction of 16.8 per cent in same period last year.

Lauding the turnaround in IIP data, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan said: “It’s good news. It indicates a revival in industrial growth. I believe the phase of negative growth is coming to an end. Growth will pick up in coming months.”

Bold measures needed

Echoing similar sentiments was India Inc. and argued for the need for easing interest rates to sustain the recovery momentum. In a statement, CII Director General Chandrajit Banerjee said: “This is welcome, though it is too early to presume that a recovery is under way...In the very short-term, of course, an easing of benchmark rates by the RBI would provide the much needed demand traction which has been ailing segments like consumer durables.”

Demanding the same policy measures was industry chamber FICCI. “The government needs to take some bold measures like reducing interest rates further, fast-track implementation of large projects like industrial corridors and through pro-active government procurement policies,” Secretary-General A. Didar Singh said.

The IIP data revealed that out of the 22 industry groups in the manufacturing sector, as many as 11 posted positive growth rates in July. However, the mining sector continued to be in negative territory with its output dropping by 2.3 per cent in July this year as compared to a slide of 3.5 per cent. Consumer goods output also contracted 0.9 per cent in July as compared to a growth of 0.7 per cent witnessed during the month a year ago.

While the output decline in the consumer durables segment stood at 9.3 per cent in July as compared to a growth of 0.8 per cent last year, production of consumer non-durables grew 6.8 per cent during the month as against a 0.6 per cent drop a year ago. For the April-July period, it saw an increase of 6.8 per cent this year as compared to a mere 0.6 per cent growth in the same period a year ago. Intermediate goods output also went up by 2.4 per cent in July as against 0.1 per cent a year ago.