India’s industrial production in Q1 saw gradual recovery on base effect

India’s year-on-year growth in the Index of Industrial Production (IIP) in the April-June period for the past five years. Industrial production in April-June 2018 was much better compared with last year. However, it is still lower, compared with the first quarter of FY17, or FY15.

The impact of the base effect is clearly visible—one big reason for the IIP to surge this fiscal year is because of a low base.

Moreover, the chart shows that years of high industrial growth alternate with periods of low growth, which, too, to some extent, is due to the base effect.

But what are the takeaways from the IIP numbers? Infrastructure and the construction goods sector is doing well, which should be good for job growth for the masses; consumer durable production is showing good growth, but that has a base effect and is partly driven by higher personal loans; growth in capital goods is due to a strong base effect; and electricity production is not doing too well.

As a report by Kotak economists Suvodeep Rakshit and Upasna Bhardwaj put it: “Industrial growth has likely troughed and a phase of gradual recovery seems to be underway. On the flip side, this lends strength to the Reserve Bank of India’s argument that the output gap has almost closed, implying that incremental demand growth without commensurate supply-side expansion could be inflationary.”

Source: LIVEMINT