India Industry January 2018

India: Industrial production growth surprises to the upside in January

Industrial production growth increased to 7.5% in year-on-year terms in January from the 7.1% rise recorded in the previous month. January’s figure was a positive surprise, coming in above market expectations of a deceleration to a 6.7% increase. The stronger-than-expected figure largely reflected a lift in manufacturing activity and stronger electricity generation growth, which more than offset near stagnant growth in mining output.

On a use-based classification, January’s solid factory output print resulted from healthier production across the board. Consumer durable production increased 8.0% in annual terms in January, a much better reading over the 1.5% increase recorded in December and the highest figure in over a year. Capital good production—a gauge of domestic fixed investment—was also up a solid 14.6% in January, slightly above the already buoyant 14.4% expansion recorded in December. Infrastructure output growth was also stronger over a month ago, reflecting solid momentum in steel, cement and coal production. The sole discordant note was non-durable good output, which decelerated but remained at double-digit growth in January.

The exceedingly solid performance seen in recent months in industrial production data corroborates our panelists’ calls for a sharp economic recovery as the economy firmly puts demonetization and the Goods and Services Tax (GST) implementation in the rearview mirror. Although February’s manufacturing PMI suggests some degree of consolidation in the month, the broad improvement in industrial output sub-components suggest factory activity will remain healthy in upcoming months.

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