Manufacturing growth slows down in March

IIP RISES 5% IN FY17 ON NEW SERIES

The new-look index of industrial production (IIP) and the wholesale price index (WPI), which were declared on Friday and have been built on the new series of data, paint a healthier picture of the Indian economy in 2016-17 than the old series did. However, the impact of demonetisation still persisted on industrial production, particularly manufacturing, which declined in March over February. Besides, investments are yet to pick up. The base year for the indices in the new series has shifted to 2011-12, against the earlier 2004-05.

The series has been revised after eight years. “Our attempt will be to revise the series more frequently now. The technical review committee has been established to ensure the series remains relevant by identifying new items. It will meet at least once a year,” Chief Statistician TCA Anant told reporters.

Showing a brighter side, the IIP data on new series showed that in none of the months in 2016-17 did the IIP contract, while it declined in six months — April, July, August, October, December, and February — in the old series.

The new series of the IIP shows higher growth rates in most months in the period April 2012 to March 2017 than was the case when the computation was done in accordance with the old series. This is attributable to the base shift, increase in the number of factories in the panel for the reporting data and excluding closed ones, and including new items and keeping out old ones.

Calculated in accordance with the new series, while the IIP rose 2.7 per cent in March, against 1.9 per cent in February, the WPI inflation rate declined to a four-month low of 3.85 per cent in April, against 5.29 per cent in the previous month. The consumer price index (CPI), which had moved to the new series earlier, declined to a record 2.99 per cent in April, against 3.81 per cent in the previous month.

“The improvement in IIP growth in March 2017 relative to February 2017 on a year-on-year basis, resonates with the trends available from several other early indicators, spanning mining, electricity, manufacturing, trade, transport and financing,” said Aditi Nayar, principal economist, Icra.

Gross domestic product (GDP) is also expected to undergo revision, based on the new WPI and IIP numbers. The WPI is used as a deflator for manufacturing to compute constant GDP. The government will release GDP figures for 2016-17 at the end of this month. Advance Estimates had shown the economy grew 7.1 per cent in the year.

“The importance of the WPI has gone up enormously under the new national account series. GDP will have to be re-computed from the base year onwards, based on the new WPI series. GDP constant price series from 2011-12 can change quite dramatically now,” said Pronab Sen, former chief statistician.

The downward revision in the WPI numbers may have an impact on real GDP numbers, to the extent of the downward revision of GDP deflator. However, it might be a little early to say whether the impact could be in the upward direction, said Soumya Kanti Ghosh, chief economic advisor, SBI.

The IIP data of November 2016 did not reflect the impact of demonetization, as the effect came with a lag. However, it was visible in the four months from December to March, as the IIP did not return to the level seen in November, when it had grown by 5.7 per cent. The same trend was found even in the old series, by which IIP growth in November was 5.6 per cent, the highest in the post-demonetisation period.

“There seems to be some visible effect of demonetisation in the new IIP series. Usually the last quarter tends to show the highest growth,” said Sen.

The manufacturing growth rate declined by 1.2 per cent in March, against 1.4 per cent in the previous month. This is the lowest growth in the three-month period, but was higher than the 0.9 per cent in December, which was the worst affected due to demonetisation.

Mining saw stupendous growth of 9.7 per cent in March, against 4.6 per cent in February, while electricity generation rose 6.2 per cent, against 1.2 per cent over this period.