Diwali boost to industrial production index, inflation unchanged
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Diwali boost to industrial production index, inflation unchanged

Companies stepped up production to restock warehouses ahead of the festival season after they reduced output in June and July owing to uncertainties over GST implementation.

business Updated: Oct 12, 2017 23:17 IST
Asit Ranjan Mishra
Asit Ranjan Mishra
Livemint, New Delhi
Men work at a cycle spare parts factory in Ludhiana. (AFP File Photo)

India’s factory output rebounded strongly to a nine-month high of 4.3% in August as companies stepped up production to restock warehouses ahead of the festival season, after they reduced output in June and July owing to uncertainties regarding implementation of the goods and services tax (GST).

The Central Statistics Office (CSO) further revised downward the index of industrial production (IIP) figure for July to 0.9% from 1.2% estimated earlier.

Data separately released by CSO showed retail inflation was unchanged at 3.28% in September from its revised figure for August – the provisional retail inflation for August was 3.36%.

The rebound in factory output reinforces the claim that subsequent quarters would see a recovery in the economic growth momentum; growth in gross domestic product had slowed to 5.7% in the first quarter ended June. However, analysts claimed that it would be better to wait and watch.

“Three successive impressive growth rates would indicate a real recovery. Or else it would be more a case of the restocking impact of the GST effect,” said Madan Sabnavis, chief economist at Care Ratings.

After the economy unexpectedly slowed to a three-year low at 5.7% in June quarter, clamour for a fiscal stimulus grew with finance minister Arun Jaitley also hinting at measures to revive the economy.

The newly constituted Prime minister’s economic advisory council under economist Bibek Debroy that met for the first time on Wednesday ruled out the need for a fiscal stimulus to prop up the economy, holding that the economy is on a recovery path.

The sectoral signals so far have been mixed.

Growth in car sales in September slowed to 7% from 11.8% a month ago while passenger vehicles sales grew 11% in September from 13.8% a month ago, according to data released by industry lobby Society of Indian Automobile Manufacturers or Siam.

However, demand for plane seats in the festival season has been weak with airlines offering a Diwali bonanza in the form of sharp cuts in flight ticket prices to attract travellers, Mint reported on 11 October.

Typically, flight fares in the fortnight leading up to Diwali and in the quarter to 10 January are among the highest in the year.

Aditi Nayar, principal economist at ICRA Ltd, said the pick up in industrial growth may not sustain in September.

“While the impact of post-GST restocking may have started to fade, inventory building prior to the festive season is likely to have bolstered manufacturing growth in the just-concluded month. Nevertheless, given the somewhat unfavourable base effect, we expect the IIP growth to ease in September 2017 relative to print of 5% in September 2016,” she added.

RBI pared its economic growth projection based on gross value added (GVA) to 6.7% for 2017-18 from 7.3% estimated earlier, blaming the tepid growth in foodgrains production, adverse impact of implementation of GST on the industries and weak consumer confidence. However, it held that the economic recovery will begin as soon as the second quarter of the financial year.

First Published: Oct 12, 2017 23:01 IST