IIP surges to five-month high of 7%

‘Increase aided by pickup in investment demand, part-spurred by a rise in government expenditure’

August 10, 2018 10:47 pm | Updated 10:47 pm IST - NEW DELHI

 Strong recovery in manufacturing and consumer durables is encouraging, says ICICI Bank’s B. Prasanna.

Strong recovery in manufacturing and consumer durables is encouraging, says ICICI Bank’s B. Prasanna.

Growth in industrial activity picked up to a five-month high of 7% in June, driven by an across-the-board acceleration in growth rates including in sectors such as manufacturing, electricity, infrastructure, and capital and consumer goods, according to official data released on Friday.

The Index of Industrial Production registered a growth rate of 7% in June, rising from 3.93% in May. Within this, the manufacturing sector grew 6.9% in June, an increase from 3.66% in May.

‘Credit, exports rise’

“There is a pickup in investment demand overall,” D.K. Srivastava, chief policy advisor at EY India said. “This is partly driven by an increase in government expenditure. The stimulus by the government on the current and capital sides and a pickup in private investment has led to industrial growth. This is shown by a pickup in other indicators as well, such as credit data and exports.”

The primary goods segment within the IIP registered a growth rate of 9.28% in June, up from 5.74% in May. Capital goods witnessed a similar acceleration in growth rates, coming in at 9.62% in June up from 6.92% in the previous month. The infrastructure sector showed strong growth of 8.53% in June, up from 7.42% in May.

“The strong recovery in manufacturing and consumer durables is particularly encouraging as is the continued strength in infrastructure and construction sector,” B. Prasanna, group executive and head, global markets group, ICICI Bank, said in a note.

“This is in tandem with credit growth in the construction sector at around 8% during the last 12 months.”

‘Weak non-durables’

“However, we are slightly concerned with the weakness in consumer non-durables, though this could reverse on the back of normal monsoons and government support aiding rural income as we go ahead,” Mr. Prasanna added. Consumer goods saw growth accelerating to 5.92% in June from 1.57% in May.

Within this, consumer durables witnessed a strong surge, registering a growth rate of 13.1% in June, up from 6.39% in May.

Consumer non-durables, however, grew only 0.47% in June, although this reversed the contraction of 2.06% witnessed in the previous month. “The encouraging news is the jump in the production of capital goods and infrastructure and construction goods,” Chandrajit Banerjee, director general of CII said in a note.

“Even on a low base of last year, this could be the reflection of the positive investment trend, in sectors such as roads, railways and affordable housing.”

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