The Index of Industrial Production (IIP) for April, released on Friday, registered a growth of 4.1 per cent, far faster than the 1.6-2 per cent expected by experts, and also much faster than the 2.1 per cent registered in March.
The Consumer Price Index inflation for May, also released at the same time, rose to 5 per cent, in line with expectations. However, it was at 4.87 per cent in April.
The April data shows that manufacturing sector output rose 5.1 per cent compared to what it was in April the previous year. This growth rate is more than double the 2.25 per cent registered in March 2015 over the same month in 2014.
The IIP’s growth spurt in April confirms Finance Minister Arun Jaitley’s assertion that the 84 per cent jump in excise duty collections pointed towards a recovery in manufacturing. Central excise duty collections increased from Rs.11,838 crore in May 2014 to Rs.21,809 crore in May 2015.
“With the government, all accounts are on an actual basis. Only if they receive the amount will it be accounted for. Excise duty is levied on production at the warehouse. This would suggest an increase in manufacturing, as the Finance Minister has pointed out,” said Mr. Madan Sabnavis, Chief Economist, CARE Ratings.
The Confederation of Indian Industry (CII) backs the view that there are signs of green shoots of recovery. “There is enough evidence that investment has started picking up, as capital goods production is showing an uptick. Delays in project clearance are no longer an issue. Going forward, we believe that manufacturing activity would further pick up as demand improves, said Chandrajit Banerjee, Director General, CII.
The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of April 2015, registered growth rates of 0.6 per cent, 5.1 per cent and -0.5 per cent, respectively, as compared to April 2014.
Earlier in the week, on Wednesday, Mr. Jaitley had pointed towards the 37.3 per cent growth in indirect tax collections — from Rs.36,408 crore in May 2014 to Rs.49,993 crore in May 2015 — as a sign of economic, and especially manufacturing, recovery. However, low factory capacity utilisation levels remain a point of concern. “Capacity utilisation levels have to show a significant improvement in some sectors. But corporates have started witnessing a rise in their order pipelines. A very significant new investment revival is awaiting improvements in capacity utilization,” said Mr. Banerjee. Even the Reserve Bank of India had recently pointed towards low capacity utilisation levels as a factor that needed to be rectified.
In addition, the output of eight core industries contracted by 0.4 per cent in April, the second month in a row of contraction, on the poor performance of the electricity, cement, refinery products, fertiliser, crude oil, and natural gas sectors. Coal and steel were the only two core sectors that saw growth, of 7.9 per cent and 0.7 per cent, respectively.
This data comes on top of Mr. Jaitley’s regular assertions that there are sure signs of an economic recovery, and the Reserve Bank of India Governor Raghuram Rajan’s warnings that the weakness in investments, corporate results, and demand means the economy is still below potential.