Factory output bucks note ban, rises 2.7% in Jan

Mining, manufacturing, electricity output increase, but consumer demand yet to pick up

India’s factory output, as measured by the index of industrial production, rose 2.7% in January, apparently shrugging off the impact of demonetisation. 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 nondurable 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 April 6.

“The IIP data shows the impact of demonetisation for January as both the consumer durables and non durables are showing negative growth,” said Sunil Kumar Sin ha, principal economist, India Ratings and Research Pvt Ltd. “But the impact of demonetisation is not fully captured as IIP numbers do not factor in unorganised sector data.”

India’s economy grew 7% in the third quarter, data released by the CSO have shown.