Factory production rose to five-month high of 7 per cent in June, a government data released on Friday showed.

All eyes will now be on the two inflation data to be released on Monday, as all three data chart out the path for the next round of rate revision.

Double that of May

“Capital goods growth was 9.6 per cent. First quarter IIP growth stands at 5.2 per cent with manufacturing also recording same growth. Nineteen out of 23 industry groups recorded positive growth with computer and electronics growth at 44 per cent,” Economic Affairs Secretary Subhash Chandra Garg said in a tweet. June growth rate is higher than expected and nearly double of May data which was at 3.9 per cent. Expert believes that the strong growth was supported by base effect. IIP manufacturing growth contracted by 0.7 per cent in June 2017 and overall IIP growth contracted by 0.3 per cent.

Still this number is impressive as growth rate for the last two months (April-May) was sub 5 per cent. June 2018, consumer durables growth at 13.1 per cent was 32 months high and was supported by 3.5 per cent contraction in consumer durable output in June 2017.

While mining and manufacturing growth was more in line with the growth observed in core infrastructure industries, electricity growth at 8.5 per cent was more than twice of electricity sector growth as per core industries data (4 per cent).

 

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Consumer non-durables and intermediate goods displayed a subdued performance. The weakness in consumer non-durables was led by sub-sectors such as tobacco and various pharmaceutical products.

The subdued growth of intermediate goods output in June imbues some caution into whether final demand will remain robust in the coming months once the favourable base effect wears off.

Devendra Kumar Pant, Chief Economist and Senior Director (Public Finance) at India Ratings, said while primary goods, one of the lead indicators of industrial growth, exhibits good growth and gives confidence of sustained industrial recovery, the intermediate goods, other lead indicator, does not give much confidence on sustainability of industrial growth.

“Nonetheless, second consecutive year of near normal monsoon, higher MSP and government focus on infrastructure and housing is likely to keep the demand momentum strong,” he said.

‘Unlikely to sustain’

Aditi Nayar, Principal Economist at ICRA, said IIP growth in July is unlikely to sustain at the 7 per cent level recorded in June, led by a modest slowdown in growth of coal output, automobile production and electricity generation, as well as an unfavourable base effect. The 5.2 per cent growth in manufacturing volumes in April-June quarter (Q1 FY2019), in conjunction with the healthy earnings growth displayed by corporates in several sectors, which partly reflects the base effect related to the transition to the GST, is likely to boost the GVA growth of manufacturing to double digits for the just concluded quarter. “However, higher commodity prices and a weaker rupee would dampen the GVA growth in certain sectors. Overall, GDP growth is expected to print at a healthy 7.5 per cent in Q1 FY2019,” she said.

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