July factory output jumps 4.2% on capital goods push

K.R.Srivats Updated - January 22, 2018 at 08:06 PM.

Beats expectations aided by better manufacturing performance, too

iips

A strong showing in manufacturing helped catapult factory output growth in July to 4.2 per cent, much higher than the 0.9 per cent growth recorded in the same month last year.

However, the latest Index of Industrial Production (IIP) reading of 4.2 per cent was lower than the now revised June IIP growth of 4.4 per cent. IIP growth for June was earlier pegged at 3.8 per cent. For April-July 2015, the IIP recorded 3.5 per cent (3.6 per cent), official data released on Friday showed.

Manufacturing output — which has a weightage of 75 per cent in IIP — grew 4.7 per cent, much higher than the contraction of 0.3 per cent in the same month last year. That manufacturing would do well in July was expected given that excise duty collections in that month recorded double digit growth, say economy watchers.

Under the use-based classification, capital goods output saw a strong growth of 10.6 per cent as against a contraction of 3 per cent in July last year. Capital goods output has recorded good growth in nine of the last 10 months.

Consumer durables output in July grew 11.4 per cent as against contraction of 20.4 per cent recorded in the same month last year.

Economists are divided on whether the latest jump in factory output growth reflected a full-steam economic recovery. This is even as the Finance Ministry is convinced that economy was on recovery mode going by the first quarter GDP growth of 7 per cent and the April-August indirect tax collections recording a whopping 36 per cent growth.

Monday will see the release of consumer price index for August. Indications are that the retail inflation print would come at a record low of close to 3.5 per cent. The RBI has lowered policy rates by 75 basis points — in three cuts – since January this year.

Dhananjay Sinha, Head of Research, Economist & Strategist, Emkay Global Financial Services Ltd, said: “IIP growth unexpectedly surged to 4.2 per cent for July 2015. However, the growth seems skewed as nearly 62 per cent of the growth is from capital goods and gems & jewellery sectors. Although, capital goods sector surged to 10.6 per cent YoY, machinery and equipment – leading indicator of infrastructure activity declined to 2.4 per cent YoY.

“Surge in capital goods sector might be attributable to increase in government spending. However, weak domestic and global conditions (as indicated by weak corporate sales and export growth respectively) continue to point towards sluggish IIP growth for the rest for the year.”

Srivats.kr@thehindu.co.in

Published on September 11, 2015 12:22