IN: Industrial Production

Thu Apr 12 07:00:00 CDT 2018

Actual Previous
Change Y/Y 7.1% 7.5%

India's industrial production index rose 7.1 percent on the year in February, down from 7.5 percent in January. Despite this moderation, growth remains well above levels recorded over most of 2017 and continues to indicate a solid recovery after a period of weakness following the introduction of a new goods and services tax in mid-2017.

The drop in headline year-on-year growth was mainly driven by the electricity sector, which accounts for around 8 percent of total industrial production. Year-on-year growth in electricity production slowed from a revised 7.6 percent in January to 4.5 percent in February. Manufacturing output, which accounts for almost 78 percent of the total index, grew by 8.7 percent on the year in February, up slightly from a revised increase of 8.6 percent in January, while mining output, which accounts for around 14 percent of the index, fell 0.3 percent on the year in February, down from a revised 0.2 percent increase in January.

Consistent with the decline in headline growth in industrial production reported today, PMI survey data also indicated that conditions in the manufacturing sector weakened in February. More recent PMI data released earlier in the month showed a further and third consecutive decline in the manufacturing survey's headline index in March.

Officials at the Reserve Bank of India, however, expressed confidence about the growth outlook at their policy review held earlier in the week, citing their view that business investment and exports growth is likely to strengthen. They forecast economic growth to pick up from an estimated 6.6 percent in the fiscal year just ended to 7.4 percent in the new fiscal year, up from a previous forecast of 7.2 percent.

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.