IIP rebounds but demonetisation a dampener

Industrial output grew 0.7 per cent in September compared with the same period a year ago, snapping a two-month contraction, government data showed.

The Index of Industrial Production contracted 0.7 per cent in August, and shrank 2.5 per cent in July. The move back into growth territory was driven mainly by consumer goods, with consumer durables especially seeing a strong turnaround.

Consumer durables

A healthy contribution by consumer durables is likely to be short-lived, with experts saying that the government’s demonetisation move will dampen consumption in the remaining two quarters of the year.

“Growth has come in at 0.7 per cent for the month, which is much lower than our expectation of 3.1 per cent which was based on the better performance of infra industries and retail sales in October which should have been backed up by higher production,” Madan Sabnavis, Chief Economist at Care Ratings said. “The recent demonetization will push back consumption in Q3 and a recovery can be seen with a lag in Q4 at best.”

“Under these circumstances we expect IIP growth for the year to be between 1-2 per cent as against 3-4 per cent posted earlier,” Mr. Sabnavis added.

The consumer durables category in the IIP grew a robust 14 per cent in September, up from the 2.2 per cent seen in August. This pushed the growth of the overall consumer goods category up to 6 per cent in September from the 0.7 per cent in August.

The capital goods category extended its run of poor performance with 11 consecutive months of contraction. The category contracted 21.6 per cent in September compared with 22 per cent in August.

The manufacturing sector recovered marginally, growing 0.9 per cent following two consecutive months of contraction. The electricity sector grew 2.4 per cent in September, much faster than the 0.1 per cent growth rate seen in August.

“In terms of industries, twelve out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of September 2016 as compared to the corresponding month of the previous year,” according to a government statement.

[Source:- Hindu]