India’s factory output grew by 2% in September, higher than the previous month’s 0.4% growth, raising hopes of an industrial rebound, although capital and consumer durables’ production contracted during the month suggesting that investment by firms and purchase of goods such as cars and televisions remain low.
The manufacturing sector, which accounts for 80% of India’s total industrial output, grew by 0.6% from a contraction of 1.6% in the same month of the previous year.
Capital goods output — a proxy for measuring investment by companies — however contracted 6.8% in September from a contraction of 13.3% in same month of the previous year — a sign that firms are putting off capacity expansion plans squeezed by high borrowing and input costs.
Experts said that it may be too early to conclude that these data point towards a recovery in the broader economy.
“The modest increase in the index of industrial production (IIP) for the month of September is not reason enough for us to conclude that industry has turned the corner and is on a path to recovery,” said Chandrajit Banerjee, director general of Confederation of Indian Industry (CII), an industry body.
“While a normal monsoon and consequent pick-up in rural incomes could push up consumption growth, a sustained revival in consumption will be contingent on a pick-up in incomes and moderation in retail inflation,” credit rating and research firm Crisil said in a research report.