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Business News/ Politics / Policy/  IIP rises 2.7% in January, shrugging off demonetisation impact
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IIP rises 2.7% in January, shrugging off demonetisation impact

Data released by the Central Statistics Office showed the index of industrial production (IIP) rose 2.7% in January after contracting by 0.4% in December

Capital goods production—a key indicator of the investment demand in the economy—also rebounded growing by 10.7% in the month. Photo: HTPremium
Capital goods production—a key indicator of the investment demand in the economy—also rebounded growing by 10.7% in the month. Photo: HT

New Delhi: India’s factory output, as measured by the index of industrial production (IIP), rose 2.7% in January, apparently shrugging off the impact of demonetization.

Factory output had contracted by 0.1% in December after growing 5.7% in November, the fastest pace in 13 months, driven mainly by a positive base effect.

Data released by the Central Statistics Office (CSO) showed that in January, mining, manufacturing and electricity output increased.

While mining output grew 5.3%, manufacturing rose 2.3% and electricity generation gained 3.9%.

Capital goods production—a key indicator of investment demand in the economy—also rebounded, growing by 10.7% in the month although economists were sceptical whether this trend would be sustained. In the 10 months ended January, capital goods production contracted by more than 21%.

In an indication that consumer demand is yet to pick up, consumer goods production contracted by 1%, mainly on account of a sharp fall in consumer non-durable goods production.

In terms of industries, nine of the 22 industry groups registered growth. Electrical machinery and apparatus posted the highest growth, followed by radio, TV and communication equipment and basic metals.

The factory output data, along with the retail and wholesale price inflation data to be released next week, will be the last set of economic indicators before the release of the next monetary policy statement by the Reserve Bank of India (RBI) on 6 April.

RBI had shifted its stance to neutral in its 8 February policy and kept the policy rates unchanged, citing its objective of ensuring that retail inflation remains contained at 4%.

“The IIP data shows the impact of demonetization for the month of January as both the consumer durables and non-durables—key indicators of the demand in the economy—are showing negative growth," said Sunil Kumar Sinha, principal economist, India Ratings and Research Pvt. Ltd. “But the impact of demonetization is not fully captured as IIP numbers do not factor in unorganized sector data," he said

“There is structural inconsistency in the data. Hence we need to look at the period from April to January where there is a flat growth of 0.6% which provides a true picture," added Sinha.

Prime Minister Narendra Modi invalidated old Rs500 and Rs1,000 notes on 8 November in a move that led to a massive cash crunch in the economy. Though economists and international institutions have forecast this measure to shave at least one percentage point off gross domestic product growth in 2016-17, official data released so far has sent mixed signals.

India’s economy grew 7% in the third quarter of 2016-17, data released by the CSO has shown. CSO also retained the full-year growth forecast at 7.1% in 2016-17, compared with 7.9% in 2015-16.

“The positive growth this month for the IIP is on account of favourable base effect. Passenger vehicles, a component of consumer durables, has done well in the month of January. In basic goods, steel has been doing well for quite some time," said Madan Sabnavis, chief economist at Care Ratings.

“But we need to be cautious about the growth in the capital goods segment as this growth is not likely to be sustainable. The growth has been mainly on account of electrical machinery and apparatus, which has witnessed growth of about 40% this month, and this is not sustainable," added Sabnavis.

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Published: 10 Mar 2017, 06:11 PM IST
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