March IIP growth may slip below 7%, first time in 5 months, say economists

March IIP growth may slip below 7%, first time in 5 months, say economists
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New Delhi, May 11: After growing at more than 7 per cent for four straight months, the growth rate for the country’s industrial production might fall below that level in March, according to experts.
The Index of Industrial Production (IIP) had in February grown at 7.1 per cent, driven mainly by strong manufacturing growth, compared with 7.4 per cent in January. But growth estimates have reduced since.
Growth in the combined output of the economy’s eight core sectors, which make up about 40 per cent of total industrial production, slowed in March to 4.1 per cent. Core sector growth had been consistently going down, being 5.3 per cent in February and 6.1 per cent in January.
“The trend in the growth of core sector output, auto production and non-oil merchandise exports, as well as the unfavourable base effect, suggest an impending dip in the pace of expansion of the IIP below 7.0 per cent in March 2018, after a gap of four months.” said Aditi Nayar, principal economist at ratings agency ICRA.
“Sequential decline in core sector growth in March isthe mainly explained by decline in refinery products production,” said Devendra Pant, chief economist at India Ratings and Research.
Based on this, growth in the primary goods category within the IIP is expected to be marginally weaker for March, even as consumption growth compensates, he added.
Within the IIP, manufacturing rose by 8.7 per cent in February, marginally higher than 8.6 per cent in January, with 15 of the 23 industry groups showing positive growth. The manufacture of other transport equipment showed the highest positive growth of 32 per cent, followed by 26.9 per cent in the manufacture of machinery and equipment, and 19.9 per cent in the case of motor vehicles, trailers and semi-trailers. However, mining output contracted by 0.3 per cent and the pace of electricity generation eased to 4.5 per cent in February from 7.6 per cent in January.
The capital goods segment, which connotes investment, grew at a robust 20 per cent in February, up from 12.8 per cent in the previous month. However, economists have warned against reading too much into the figures. “Capital goods (segment) has been propped by the vehicle and non-electrical segments, and electrical machinery has negative growth, and hence should be interpreted with caution,” said Madan Sabnavis, chief economist at CARE.
Others are of the same opinion. “While the growth of capital goods output has surged in recent months, the year-to-date growth remains moderate at 5.3 per cent. In our view, recovery in investment activity remains limited to certain sectors,” said Nayar.
Consumer durables and non-durables segments grew by 7.9 per cent and 7.4 per cent, respectively, suggesting the underlying consumer demand in the economy, remains healthy, say experts. CARE expects overall growth in IIP to be in the range of 4.6-4.7 per cent for FY18.