IIP cheer: August factory output rebounds at 4.3%

K.R.Srivats New Delhi | Updated on January 09, 2018

September retail inflation remains steady at 3.28% over unexpected easing in food inflation

Industrial output strengthened in August 2017 to record robust 4.3 per cent growth as re-stocking of manufactured items gained momentum shrugging of the teething troubles posed by the GST implementation from July 1.

A higher-than-expected demand on account of the festive season also bolstered factory output for the month under review, said economy watchers.

Factory output recorded a muted 0.9 per cent growth in July 2017, which was the first month after GST implementation. The Index of Industrial Production (IIP) recorded 4 per cent growth in August last year.

Also, the overall factory output growth for August 2017 was buoyed by strong performance in mining and electricity sectors. While mining industries output grew 9.4 per cent (-4.3 per cent in August 2016), electricity generation grew 8.3 per cent (2.1 per cent).

However, for the period April-August 2017, factory output grew at disappointing 2.2 per cent as compared to 5.9 per cent growth in same period last fiscal.

Sequential improvement

On an encouraging note, the sequential improvement in industrial growth in August 2017 was broad-based, led by all three sectors (mining, manufacturing and electricity) and five of the six use-based industries (except infrastructure/construction goods). However, 13 of the 23 sub-sectors of manufacturing with a weight of 27 per cent in the IIP, recorded a contraction in August 2017.

CPI inflation steady

Meanwhile, the Consumer Price Index (CPI) inflation for September 2017 came in at 3.28 per cent, the same level as previous month. The latest print is lower than 4.39 per cent recorded in September last year. It is also below the Reserve Bank of India’s medium target of 4 per cent. Consumer food price Index (CFPI) inflation, which has a weightage of about 40 per cent in overall CPI, fell to 1.25 per cent in September 2017 from a level of 1.52 per cent in the previous month. It was 3.96 per cent in September 2016.

Aditi Nayar, Vice-President and Principal Economist, ICRA, said that the CPI inflation mildly trailed estimates for September 2017, on the back of the downward revision in the print for August 2017, and an unexpected easing in food inflation.

The mild easing in food inflation in September 2017 relative to the previous month, was offset by the considerable rise in inflation for housing, on the back of the HRA revision, as well as fuel and light, and pan, tobacco and intoxicants, she said..

“Overall, we expect the CPI inflation to cross 4.0 per cent in the ongoing quarter and exceed 4.5 per cent in March 2018,” she added.

Industry enthused

The rebound in IIP is inspiring after a slowdown in the months of June 2017 and July 2017 vis-à-vis destocking and teething problems of GST, said Gopal Jiwarajka, President, PHD Chamber of Commerce and Industry (PHDCCI).

The uptick in capital goods at 5.4 per cent in August 2017 indicate that investment activity can revive in the coming months, he added.

However, economy watchers felt that this uptick in industrial growth may not sustain in September 2017, with the early indicators for industrial production in the organised sectors, namely, automobiles, coal and electricity generation, revealing some moderation in the pace of expansion from the spikes recorded in August 2017.

Published on October 12, 2017

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