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Expectations of good monsoon, growing IIP bode well for economy

Monday, June 13, 2016
By Dominic Rebello

In how good shape is the economy? From most statistical estimates and forecasts, it seems FY’17 could end on a positive note. Higher infrastructure spending by the government too will have appositive bearing, albeit a gradual one, on the overall growth of capital goods. Then there is the monsoon forecast by the IMD and Skymet, both of which predict an above average monsoon. So, except for any unexpected turmoil in the global economy, that may spoil the party, 2016-17 promises to be a good year for India…

The “industrial production in FY17 is expected to pick up in coming month on back of improved infrastructure spending by the government and improvement in the consumer goods segment. The growth in consumer goods segment is slated to strengthen in the second half of the year with expectations of increased Urban and Rural demand. The increase in consumption demand in turn could help the capital goods segment’” says CARE Ratings, adding “Higher infrastructure spending by the government too will have appositive bearing, albeit a gradual one, on the overall growth of capital goods. We expect the industrial sector to grow between 4-5% in FY17.”

This despite the fact that the Index of Industrial Production for April has witnessed a negative growth of 0.8% as against growth of 3.0% over the corresponding period in the previous year. The overall negative growth in the industrial data is primarily on account of the -3.1% growth in manufacturing.

The table below depicts the industrial production in brief while comparing the same with FY16 figures for the month of April

  • Mining sector growth increased to 1.4% in Apr’16 on year-on-year as against a growth of -0.6% in Apr’15.
  • Manufacturing segment registered a growth of -3.0% this month as against 3.9% in Apr’15
  • In terms of industries, 9 out of 22 industries registered negative growth during the month
  • The industry group ‘Electrical machinery & apparatus n.e.c.’ has shown the highest of April 2016 as compared to the corresponding month of the previous year negative growth of -55.9% followed by %24.5% in ‘Food products and beverages’ and -17.6% in ‘Tobacco products’. The remaining 13 industry groups were the positive performers
  • Industry group ‘Furniture; manufacturing n.e.c’ has shown the highest positive growth of 28.0% followed by 18.8% in ‘Radio, TV and communication equipment & apparatus’ and 18.7% in ‘Office, accounting & computing machinery’.
  • Electricity sector grew by 14.6% in April 2016

Performance: Used Based Classification
A use-based analysis (Table 2) provides further clarity in reading the industrial growth data…

  • The year-on-year growth in basic goods output has registered a growth of 2.8% in Apr’16 as compared to 2.6% last year in the same month.
  • Capital goods registered a significant fall, registering a negative growth of 24.9% in Apr’16 as against 5.5% growth last year.
  • Negative growth in capital goods signifies subdued investment climate in the country.
  • Consumer goods output grew by 1.2% in Apr’16. The growth in consumer goods output is attributed to the high growth of consumer durable (11.8%). Consumer non-durables however witnessed negative growth of 9.7%.

Monsoon To Be Above Long Period Average
The India Meteorological Department (IMD), Ministry of Earth Sciences, issues the operational long range forecasts for the southwest monsoon season (June-September) rainfall over the country as a whole in two stages i.e. in April and in June. The update for the forecast for the seasonal rainfall over the country as a whole, issued in April,   predicts rainfall over the country as a whole, for the 2016 southwest monsoon season (June to September), is most likely to be Above Normal (>104% to 110% of long period average (LPA)).

The forecasts for the monthly rainfall for July & August over the country as a whole and for the season rainfall for the 4 broad geographical regions of India (NW India, NE India, Central India and South Peninsula) have been issued using a 6-parameter Ensemble Forecasting System.

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