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Business News/ Market / Mark-to-market/  IIP: Capital, consumer goods growth falls
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IIP: Capital, consumer goods growth falls

Both industrial production growth and manufacturing growth in 2015-16 have been lower than in the previous year

Graphic by Subrata Jana/MintPremium
Graphic by Subrata Jana/Mint

The Index of Industrial Production (IIP) increased by just 0.1% in March 2016 from a year ago, giving a jolt to the consensus view that the economy is on the mend. Industrial production always jumps in March compared with the previous month, due to fiscal year-end window-dressing, but that jump has been less spectacular this year. Gaurav Kapur, senior economist at Royal Bank of Scotland NV, says this year the rise in IIP in March has been 7.4% month-on-month, but that is lower than the average month-on-month increase of 10.7% between February and March in the last five years.

Both industrial production growth and manufacturing growth in 2015-16 have been lower than in the previous year. But it is the longer-term picture that shows the extent of the downturn in industry. The chart shows that the capital goods index in March 2016 came in at 280.5, far lower than where it was six years ago in March 2010, when it was at 342.6. Nor does consumption fare much better—the consumer goods index was at 203.6 in March 2016, below where it was four years ago in March 2012, when it was at 204.7.

If the IIP numbers show that consumer goods production in the country is lower than where it was four years ago, it obviously raises questions about the data. Or is it conceivable that imports of consumer goods have increased tremendously, taking care of all the increase in consumption during these years—the usual suspect being China? That may be true for capital goods as well. To take one example, rubber-insulated cables have been the biggest negative contributor to IIP since at least the last five months, dragging down the index. Rubber-insulated cables’ contribution to IIP was -2.4% in March 2016, -3% in February, -3.2% in January, -2.6% in December 2015 and -2.3% last November. But the weight of rubber-insulated cables in the index is a mere 0.12%—that indicates the huge amount by which the production of this item must have plummeted to drag down IIP. As Kapur points out, it’s necessary to find out whether there has been extensive dumping of this item before concluding that there’s something wrong with the data.

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Published: 13 May 2016, 12:51 AM IST
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