IIP: Manufacturing weakness persists, says CRISIL

CRISIL Research report on IIP data

Index of industrial production (IIP) grew at a slower pace of 0.6 per cent in August as compared to 2.8 per cent in the previous month. Excluding the exceptionally high growth of over 25 per cent in ‘wearing apparel' and ‘electrical machinery and apparatus', industrial production in fact fell by 1.1 per cent in August, compared to a year ago.

With a decline in fixed investment and a decadal low growth of 1.6 per cent in private consumption in the first quarter of 2013-14, the production of 13 out of 22 manufacturing industries has fallen between April and August this year. The growth in the production of both core industries as well as others has fallen further during this period compared to the last fiscal year. The output of consumption-oriented industries is expected to pick-up in the second half of 2013-14 due to higher rural incomes, on the back of a good monsoon and consequent high agricultural production. However, a sustained turnaround of industrial output hinges on a resolution of issues plaguing the mining sector, addressing supply-side bottlenecks in infrastructure and the ability of the government to speed up clearances of projects.

Output of the eight core infrastructure industries grew by 3.7 per cent in August, primarily due to an increase in production of coal, electricity and refinery products. However, crude oil and natural gas production fell by 1.5 per cent and 16.0 per cent, respectively, compared to a year ago. During April-August 2013, core industries have grown by 2.3 per cent, much lower than 6.3 per cent in the corresponding period of last year

Under the use-base classification of the IIP, capital good production contracted by 2.0 per cent in August, after registering a growth of 15.6 per cent in the previous month. The intermediate and basic good sectors, continued to remain sluggish.

Consumer goods output in August fell by 0.8 per cent compared to a year ago; primarily due to a continued fall in consumer durables output. While a normal monsoon and consequent pick-up in rural incomes could push up consumption growth, a sustained revival in consumption will be contingent on a sustained rise in household incomes and moderation in retail inflation.

Disclaimer: CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL Limited has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. The Centre for Economic Research, CRISIL (C-CER) operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is not available to C-CER. No part of this Report may be published / reproduced in any form without CRISIL's prior written approval.

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