India Inc posts 13-month high in production in Nov

New Delhi: Industrial production grew fastest in 13 month at 5.7 per cent in November, making it second official economic indicator within this week that showed that demonetisation may not have hit industrial activity too bad as was earlier feared. The growth was also helped by a low base as in November 2015 the industrial production had seen a negative growth of 3.4 per cent.  

Earlier this week, finance minister Arun Jaitley had flaunted good tax collections in December to prove that demonetisation had caused little disruption on the economic activity post demonetisation of Rs 500 and Rs 1,000 currency notes on November 8.

Retail inflation too eased to hit a two years low of 3.41 per cent in December from 3.63 per cent in the previous month. In terms of industries, 16 out of 22 industry groups in the manufacturing sector have shown growth during the month of November 2016 as compared to the corresponding month of the previous year.

Manufacturing sector, which constitutes over 75 per cent of the index, grew at 5.5 per cent in November. Capital goods production increased by 15 per cent in November compared to a decline in production by 24.4 per cent earlier. Consumer durables and consumer non-durables recorded growth of 9.8 per cent and 2.9 per cent respectively, with the overall growth in consumer goods being 5.6 per cent.

Calling the industrial production data as "false positive" rating agency Crisil said, "going by the production trend in some sectors such as auto, next month’s IIP growth data may be more indicative of the impact of demonetisation.” “A favourable base effect and fewer holidays following the preponement of the festive calendar, bolstered factory output from the impact of the note ban in November 2016,” said Aditi Nayar, principal economist, Icra.

She said that in most years, “we caution against analysing data for October and November individually, as shifts in the festive calendar often distort factory dispatches.” “In 2016, the distortions would extend to December as well, with an early Diwali dampening output in October 2016, fewer holidays obscuring the impact of the note ban in November 2016, and an expected adjustment in inventories likely to affect output growth  in December 2016,” said Ms Nayar.  

She said that based on the available lead indicators, IIP growth is expected to decline sharply in December 2016 from the initial 5.7 per cent in November 2016. “The numbers possibly do not display the negative effects of demonetisation as production cycles in manufacturing take longer to adjust to any demand change," said Rishi Shah, Economist, Deloitte India.