Moneycontrol
Feb 13, 2018 09:21 AM IST | Source: Moneycontrol.com

India’s factory output grows 7.1% in December

India’s industrial output growth momentum continued as it grew at 7.1 percent in December, aided by robust manufacturing output, data released by Central Statistics Office showed.

Shreya Nandi @shreyanandi15

India’s industrial output growth momentum continued as it grew at 7.1 percent in December, aided by robust manufacturing output, data released by Central Statistics Office showed.

Factory output in November had hit a 25-month high of 8.8 percent in November, 2017, as compared with a modest growth of 2.4 percent during December, 2016.

Factory output measured by the index of industrial production (IIP) is the closest approximation for measuring economic activity in the country’s business landscape.

Cumulative IIP growth for the period April-December 2017 over the corresponding period of the previous year stands at 3.7 percent.

The jump in IIP in November and December was primarily due to base effect— a statistical phenomenon that makes even tiny changes look large. The effect was primarily contributed to Prime Minister Narendra Modi’s massive currency recall exercise on November 8, 2016 that pulled out 86 percent of the currency in circulation.

Manufacturing sector, which accounts for more than three-fourths of the entire index soared 8.4 percent in December 2017, compared with a 10.2 percent jump in November 2017 and a tepid growth of 0.6 percent a year ago, government data showed.

“It (IIP growth) nevertheless remained healthy at 7.1 percent, benefitting from the favourable base effect that contributed to a double-digit growth of capital goods and consumer non-durables. Spike in manufacturing growth in November 2017 was a catch up because of the muted volumes in the earlier months of financial year2018, which would ebb away, even as a favourable base and renewed growth momentum would result in moderately healthy volume growth in several sub-sectors in the remainder of 2017-18,” Aditi Nayar, Principal Economist at ICRA said.

Capital goods output, which is a proxy to measure private sector investment activity, rose 16.4 percent in December compared with 9.8 percent in November.

“In our view, it remains somewhat premature to attribute the recent double-digit growth in capital goods to a pickup in investment activity, as it benefits from the rebuilding of inventories for sub-sectors such as commercial vehicles as well as a favourable base effect related to the 6.2 percent contraction in December 2016,” Nayar said.

Consumer durables output growth slowed to 0.9 percent in December 2017, as compared with a 2.9 percent jump in November, while consumer non-durables shot up 16.5 percent in December as compared with a growth of 3.3 percent a year ago.

“The high 16.5 percent growth of consumer non-durables in December 2017 was augmented to a considerable extent by the sharp 88.4 percent expansion in output of digestive enzymes and antacids, with a weight of just 0.2 percent in the IIP,” she said.

Mining activity’s growth remained subdued at 1.2 percent in December, following November’s trend, as compared with a robust growth of nearly 11 percent a year ago.

Construction goods jumped to 6.7 percent during December after growing in its fastest pace in nearly five years at 13.5 percent in November aided by expansion in steel and cement output.

Electricity production showed a modest improvement, rising 4.4 percent in December, as compared 3.9 percent in November and 6.4 percent a year ago.
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