Demonetisation fails to pull down industrial growth, IIP at 13-month high

Industrial production belied all expectations of huge adverse impact of demonetisation as the index rose 13-month high of 5.7% in November against a contraction of 1.8% in the previous month. However, the sharp rise was also due to statistical illusion — low industrial numbers in November 2015, which is called base effect in a technical jargon — and a sharp reversal of a 12-month declining trend in capital goods.

If this trend prevails in the coming months on wards, the advance estimates of 7.1% growth in the gross domestic production for 2016-17 need not be revised drastically in contrast to the popular perception. Industry was projected to grow 5.2% in the GDP data for 2016-17 against 7.4% in the previous financial year. It should be noted that GDP data is value in terms of rupees and IIP is only a production number in terms of index.

The sharp rise in the index of industrial production (IIP) in the month of November could also be gauged from the fact that the index rose just 0.4% in the first eight months of the current financial year against 3.8% in the corresponding period of the previous financial year.

That the index in November of 2016-17 had a low base effect was evident as IIP was at the bottom in 2016-17 so far at 166.3 points in November 2015-16. In terms of growth, IIP fell 3.4% in November of the previous financial year.

Sunil Kumar Sinha, Principal Economist, India Ratings & Research, said, "IIP grew mainly due to the base effect...On the whole there is nothing to cheer about the November IIP growth as cumulative growth for April-Nov this fiscal is even lower than that recorded for the same period last fiscal."

Manufacturing, constituting three-fourth of the index, rose 5.5% in November, aided by capital goods and passenger cars, against a de-growth of 2.4% in October. 

Manufacturing in GDP data was projected to grow 7.4% in 2016-17 against 9.3% a year ago.

Electricity generation was up almost 9% against 1% and mining 4% against decrease of 0.7%.

After declining by huge percentage each of the previous 12 months, capital goods saw a spurt of 15%. It had declined almost 27% in October. Capital goods sector is highly volatile in IIP.

Passenger cars production grew 29.5% in November, contributing 0.8% to rise in IIP.

Among automobile segment, motor vehicles, trailers & semi-trailers rose 23.2% in November and among capital goods radio, tv and communication equipment grew over 30%, electrical machinery and apparatus was up 23% and machinery and equipment by 13%.

Bolstered by auto, consumer durables surged almost 10% in November against a miniscule 0.6% in November.

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