Higher value added manufacturing sector help IIP but base effect consideration remains

Impact: Positive (GVA growth, Non-petroleum exports)

Brief: IIP number for October, 2018 stands at eleven month high of 8.1%, which was 1.8% a year earlier. Manufacturing segment that expanded by 7.9% during the time frame is primarily behind the dynamic of industrial growth. Output and value addition are highly associated with a coefficient of 0.62 if a data frame is considered for the last three years. This indicates that higher value adding sectors are also leading in unit production as well during the recent quarters.

IIP number for October, 2018 stands at eleven month high of 8.1%, which was 1.8% a year earlier. On a use base analysis, the segments driving industrial production are capital goods (16.8%), consumer durable (17.5) and infrastructure (8.7). Manufacturing segment that expanded by 7.9% during the time frame is primarily behind the dynamic of industrial growth. The manufacturing firms are also receiving higher orders from both domestic and external market. Therefore, PMI index in recent months is also very positive. In November, the PMI index stands at nine month high of 54. This forward-looking trend in PMI index and strong growth in IIP index hints that sector is expected to lead the GVA growth in December quarter as well.

On a sectoral perspective, the industries that are recording strong growth are food products (17.4%), wearing apparels (28%), non-metallic mineral (14%), computer electronic (30%), machinery equipment (21.9%) and transport equipment (41%). As per our assessment, there is no relationship exist between growth in manufacturing output and value addition in past six year since the new series available. However, output and value addition are highly associated with a coefficient of 0.62 if a data frame is considered for the last three years. This indicates that higher value adding sectors are also leading in unit production as well during the recent quarters. The YTD numbers also show that growth in industrial production is driven by the higher value adding sectors such as computer electronics, machinery and transport equipment. We, therefore, reckon that manufacturing sector is evolving as growth driver for Indian economy.

IIP growth (Economic base)

  IIP Mining Manu Core
FY15 4.02 -1.34 3.75 4.94
FY16 3.33 4.34 2.90 2.98
FY17 4.58 5.33 4.32 4.76
FY18 4.38 2.31 4.60 4.28
Oct-17 1.83 7.64 3.80 4.73
Apr-18 4.86 5.06 5.20 4.44
May-18 3.21 5.70 2.79 4.65
Jun-18 7.04 6.60 6.90 6.67
Jul-18 6.61 3.35 6.96 6.63
Aug-18 4.30 -0.43 4.59 4.16
Sep-18 4.47 0.21 4.62 4.28
Oct-18 8.08 7.04 7.92 4.80

IIP growth (Use base)

  Primary Capital Intermediate Infra Consumer Durable Non-durable
FY15 3.74 -1.13 6.11 4.98 3.90 3.97 3.86
FY16 4.97 3.00 1.52 2.84 2.94 3.33 2.58
FY17 4.90 3.18 3.32 3.91 5.67 2.97 7.98
FY18 3.69 3.94 2.24 5.60 6.03 0.66 10.40
Oct-17 6.56 8.69 2.15 0.48 3.56 -4.06 10.49
Apr-18 3.09 13.05 1.59 7.51 5.75 4.26 7.04
May-18 5.66 7.62 0.89 4.89 0.37 4.32 -2.56
Jun-18 9.28 9.62 2.42 8.53 5.92 13.1 0.47
Jul-18 6.74 2.80 1.00 9.23 9.34 14.27 5.53
Aug-18 2.63 5.01 2.36 7.79 5.85 5.23 6.32
Sep-18 2.56 5.76 1.37 9.50 5.76 5.23 6.14
Oct-18 5.98 16.8 1.79 8.71 12.13 17.56 7.95

Source: MOSPI, Acuité Research

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