IIP Takes U-Turn to Rise 2% in Feb, Kindles Turnaround Hopes
Industrial production reverses 3-month contraction while decline in retail inflation in March raises hopes of a rate cut
New Delhi: India’s industrial production growth bounced back into positive zone in February, reversing three months of contraction and adding to the recent flow of positive data that suggests an upturn in the economy.
The Index of Industrial Production (IIP) rose 2% in February from a year ago, compared with 1.5% decline in the previous month, data released by the statistics office on Tuesday showed.
Overall April-February industrial growth is pegged at 2.6%, compared with 2.8% for the corresponding period in the previous fiscal.
Experts said it was too early to call a rebound. “Industrial growth though positive at 2% for February is still very low and does not reveal any turnaround. Unless such a trend is maintained for three successive months, it will not be possible to conclude so,” CARE Ratings said in a statement.
The recent data flow has been positive and offers some hope of a turnaround. The composite manufacturing and services Purchasing Managers’ Index (PMI) hit a 37-month high in March while motorcycle and commercial vehicles sales accelerated at a double-digit pace during the month.
The forecast of an above-normal monsoon this year should also boost sentiment and support industrial production growth.
“The IMD’s forecast of an above-normal monsoon has boosted the outlook for rural demand, which should help arrest the sustained contraction in consumer non-durables over the coming months,” ratings agency ICRA said in a statement.
Indian economy is estimated to have grown 7.6% in 2015-16 and the Reserve Bank of India has forecast 7.6% growth for the current fiscal as well. A good monsoon combined with the upturn in industrial activity could push it up towards the 8% mark.
Industrial growth got a boost from 9.6% increase in electricity generation and strong 5% increase in mining output. Manufacturing, which makes up over 75% of the IIP, rose only 0.7%, dragging down the overall growth.
Consumer goods’ production increased 9.7% in February, validating the strong urban consumption sentiment. Consumer non-durables’ production contracted 4.2%, again pointing to the rural stress because of two years of poor monsoon rains. Overall, consumer goods’ production rose 0.8%.
Production of capital goods, a proxy for investments, declined 9.8% in February, suggesting no immediate signs of an investments recovery.
“IIP data release shows a continued contraction in capital goods, an indication of a persistent lack of investment demand,” said Indranil Pan, chief economist at IDFC Bank.