IIP contracts in February but there could be a turnaround soon

The index of industrial production (IIP) contracted in February 2017, the lowest level in four months. This negative growth is primarily attributed to the decline in manufacturing sector in February 2017 and stagnant growth in electricity segment.

The index of industrial production (IIP) contracted in February 2017, the lowest level in four months. This negative growth is primarily attributed to the decline in manufacturing sector in February 2017 and stagnant growth in electricity segment. "Although the weakness in the industrial performance in February 2017 was pervasive, it partly reflected an unfavourable base effect," highlighted an ICRA report. The pace of growth of the IIP in January 2017 was revised to 3.3 per cent from 2.7 per cent, led by consumer durables, capital goods, intermediate goods and consumer non-durables. "The negative IIP numbers in the month of February has come as a surprise as the market players were expecting a positive growth number following an improvement seen in January," said Madan Sabnavis, chief economist, CARE Ratings.

A contraction again ...

On a cumulative basis, industrial growth slowed to a marginal 0.4 per cent in the first 11 months of FY17, from 2.6 per cent in the same period in the previous fiscal (April-Feb). Moreover, the IIP has recorded a contraction in six of the 11 months of this fiscal. "The overall industrial growth is contributed by mining and quarrying sector and the electricity segment. The cumulative growth however is dragged down by continued contraction in manufacturing and capital goods in FY17 so far," said Sabnavis of CARE Ratings.

Manufacturing output contracted by 2.0 per cent in February 2017, with as many as 15 of the 22 sub-sectors of manufacturing, accounting for 42.3 per cent of the IIP, recording a year-on-year (y-o-y) decline in that month. Mining output growth on a y-o-y basis eased to 3.3 per cent in February 2017 from 5.3 per cent in January 2017. The pace of growth of mining output declined to a muted 1.6 per cent in April 2016- February 2017, from 2.4 per cent in the same period previous fiscal. The growth of electricity generation eased to a marginal 0.3 per cent in February 2017 from 3.9 per cent in January 2017, led by an unfavourable base effect. The growth of electricity generation moderated to 4.6 per cent in the first eleven months of FY2017 from 5.1 per cent in April 2015-February 2016.

All the use-based groups except intermediate goods recorded a weaker performance in February 2017 relative to January 2017.

However, there could be some respite moving forward. "Available data for March 2017 paints an improved picture, with resumption of growth in auto production, and higher growth of coal output and electricity generation, as well as in non-IIP indicators such as cargo handled at major ports and consumption of some fuels, suggesting a receding impact of the note ban," said an ICRA report.