BackIndustrial production grows at fastest pace in 19 months in May
Growth led by recovery in manufacturing, which rose 4.8%, compares with a 2.5% contraction in the year-ago period
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New Delhi: India’s industrial production growth accelerated at the fastest pace in 19 months in May, official data released on Friday showed—heartening news for a government that got down to the business of fixing the economy with its first budget one day ago.
Factory output, as measured by the Index of Industrial Production (IIP), grew by a faster-than-expected 4.7% in May, up from 3.4% in April. The growth, led by a robust recovery in manufacturing, compares with a contraction of 2.5% recorded in May 2013. Industrial output growth beat a forecast of a 3.8% rise in a Reuters poll of economists.
Manufacturing sector output grew 4.8% in May while production in the mining and electricity sectors rose 2.7% and 6.3%, respectively.
The data bring good tidings for the government of Prime Minister Narendra Modi, which took office in May by winning a strong electoral mandate after two consecutive years of sub-5% growth in an economy undermined by a slowdown in investment and stalled infrastructure projects.
On Thursday, finance minister Arun Jaitley unveiled the national budget with proposals aimed at boosting the manufacturing and construction sectors, with hefty allocations for the infrastructure sector, and tax sops for the middle class to lift consumer sentiment.
The budget proposed higher limits on foreign direct investment in defence manufacturing and insurance, which could increase local production of defence equipment and help the cash-starved insurance sector, assisting economic growth and job creation.
In May, in terms of industries, 16 out of 22 industry groups in the manufacturing sector reported output growth compared with the year-ago period.
The consumer durables sector threw up the biggest surprise, posting a positive reading of 3.2%, after being in negative territory for 17 months. The volatile capital goods sector grew 4.5%.
To be sure, a benign base effect helped the May numbers look good, given the contraction in the same month last year. Analysts cautioned against jubilation over the unexpectedly high increase in factory output.
“Although sentiments have improved substantially post the strong verdict in the Parliamentary elections, the unfavourable monsoon rainfall so far may cast a cloud on consumer confidence, through channels such as low agricultural output and income growth in rural areas and high food inflation in urban areas," said Aditi Nayar, a senior economist at ICRA Ltd.
Nayar added that the continued expansion of mining activity for seven consecutive months was a favourable development, attributing it to the gradual resolution of issues related to iron ore mining.
Yes Bank Ltd said in a report that the impetus for revival of manufacturing will come from the budgetary proposals.
“As we move ahead, we expect a gradual revival in industrial growth. Based on the impetus provided in FY15 annual budget, we think a fresh leg of investments should give a push to industrial activity going forward," it added.
Last month, the finance ministry extended excise duty cuts on automobiles, capital goods and consumer durables by six months until 31 December in an attempt to revive the manufacturing sector and flagging automobiles demand.
The Economic Survey released a day before the budget said the near-term industrial upturn was conditional on continued improvements in the policy environment and a quick return to peak investment rates.
“With the improvement in overall macroeconomic environment, industry is expected to revive and growth can accelerate gradually over the next two years," it added, projecting economic growth at between 5.4% and 5.9% in fiscal year 2015.
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