Manufacturing relief

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Bikky Khosla | 15 Jan, 2018
In a signal that the economy is in a recovery mode, industrial production jumped to a 25-month high in November. In the previous month, the IIP index had hit a three-month low of 2.2 percent, raising widespread concern, and now the strong data is definitely worth celebrating. Of course, a favourable base effect and inventory rebuilding after the festive season helped the spike, but it seems the worst is over for the economy. After going through a pretty rough period of structural reforms and disruptions caused by them, the economy is now beginning to gain ground.

Giving a deeper look into the IIP data reveals some pleasant surprises. Manufacturing sector output grew by 10.2 percent in November. This sector had borne the brunt of the note ban and the GST, and now the sector's turnaround is welcome. The robust numbers mirrored the recently published 13-month high purchasing managers' index numbers, and if this trend continues we can expect better performance by the sector in December again, considering the December PMI that hit a five-year high to 54.7.

The capital goods and consumer durables figures have also come as a big relief. The November data set shows 9.4 percent growth in capital goods output. The growth rate was 5.3 percent a year ago. This shows that investment is picking up. Similarly, 2.5 percent growth in consumer durables, against 6.9 percent contraction in the month before, shows revival in demand. Additionally, intermediate goods and construction goods have also performed well, making the recovery look broad-based.

Concerns have rightly been expressed by some economy watchers that one month of data does not change the story. Well, no doubt about it. But it is difficult to ignore the fact that the IIP data, along with robust core sector growth, surge in commercial vehicle sales and high exports growth are all pointing in the direction of a revival soon. Particularly, the manufacturing sector now appears to be out of the woods. If this trend continues, the economy will get a big fillip.

I invite your opinions.