India's industrial production index fell by 0.7 percent in August compared with the same month twelve months earlier. This is an improvement on the sharp fall of 2.4 percent in July, but falls short of the consensus forecast of a fall of 0.2 percent.
The improvement in the headline growth rate was driven by the manufacturing sector, where output growth increased from minus 3.4 percent in July to minus 0.3 percent in August. Other parts of the industrial sector, however, showed weaker conditions, with year-on-year output growth falling from 0.8 percent in July to minus 5.6 percent in August for the mining sector and from 1.6 percent in July to 0.1 percent in August for the electricity sector.
Looking at industries in more detail, fifteen out of the twenty-two industry groups covered by the report showed positive year-on-year growth in August, compared with just ten in July. Looking at the categories of goods produced, year-on-year growth in the production of consumer goods fell from 1.3 percent in July to 1.1 percent in August, with weaker growth in consumer durables outweighing stronger growth in non-durables. Growth in capital goods rose from minus 29.6 percent to minus 22.2 percent, while growth in intermediate goods rose from 3.4 percent to 3.6 percent.
The Reserve Bank of India noted recent weakness in the manufacturing sector in the statement accompanying its decision to cut policy rates last week. This rebound in August may provide officials with confidence that last week's policy easing will be enough for now to help improve confidence and conditions in the manufacturing sector. The recovery in manufacturing output growth in August is also consistent with the manufacturing PMI survey, which showed an increase in the headline index from 51.8 in July to 52.6 in August, before dropping back to 52.1 in September.
Industrial production measures the physical output of the nation's factories, mines and utilities. Data are not seasonally adjusted and the main is on the annual growth rate of total industrial production and, within that, manufacturing output. The report is usually released around six weeks after the end of the reference month.
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that will not lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.
The index is a quantitative index with the production of the items being expressed in physical terms. The Index is compiled by taking into account the quantities of items produced during the current month, compared with the average monthly production in the base year. Selection of items is based on the total production of the items as the primary (main) product as well as secondary (by) product. Data are available monthly within six weeks of reference month.