When the October 2015 industrial output growth number of 9.8 per cent was announced last month, observers went gaga taking it as proof of a return to the high growth path. They missed the fact that the growth was amplified by the base effect as October 2014 was a bad month.

With November data, which was released on Tuesday, showing a contraction of 3.9 per cent, the risk is that the opinion will swing to the other extreme of pessimism.

Yet, the fact is that too much ought not to be read into the contraction in industrial output in November. If the 4.4-per cent fall in manufacturing output — driven mainly by a sharp 24.4-per cent drop in capital goods production — is a spot of worry, the robust growth in consumer durables is encouraging. November was the sixth straight month of growth in consumer durables output.

There could be two explanations for the overall contraction in industrial output. First, the heavy rains in Chennai through November hit production at most factories in and around the city which is a major industrial base in the country. The early-December floods are also likely to cast a shadow over the December output numbers when they’re released next month.

Second, Diwali this year fell in November which means that the holidays that come with the festival are likely to have affected manufacturing output.

Driven by consumption

The data make one thing clear though: that the revival, slow as it may be, is being driven largely by consumption. Passenger car sales have grown for 14 months consecutively and now anchor the uptick in consumer durables. The rural distress reflects in the fall in consumer non-durables growth which has shrunk every month since July 2015, except for October.

As rural incomes fell due to the bad monsoon, sales of FMCG and other non-durables have taken a hit.

There is reason to hope for better numbers in the fourth quarter, which is normally the busy season for industry.

The favourable effect of interest rate cuts would kick in now given the lag effect and the Pay Commission payout this month could also give a further leg up to consumption.

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