Signs of green shoots in manufacturing sector

Date: Jan 16, 2018
This year’s Budget, therefore, needs to earmark a significantly higher growth in investment for construction and infrastructure sector with a higher contribution from the private corporate sector in brown field expansion of steel, aluminium, cement iron Ore and other materials along with production of consumer durables and rise in real estates in the interest of income and employment generation.

After a gap of so many months, the industrial production index has observed a record growth of 8.4% in November 2017. It was primarily contributed by manufacturing (10.2% growth) having 77.6% weightage in IIP followed by growth in Electricity (3.9% growth) that has a weightage of nearly 8%. Notwithstanding the low base effects of October, it must be recognised that manufacturing sector is looking up after a disastrous run in the previous months. Another bright spot is Capital Goods segment growing by 9.4% in the month of which manufacture of machinery and equipments at 5.7% deserves mention. The manufacture of motor vehicles and trailers growing at 17.8% with bodies of trucks, lorries and trailers at a record 202%, axle manufacturing at 61.9%, manufacture of other Transport at 22.6% added to the sustainable growth to the Automobile sector.

The lone outlier in the growing segments was manufacture of electrical equipments experiencing a negative growth of 11.2% in the month. It has reflected in higher imports of electrical steel sheets in April-November 2017 period with CRNO/CRGO imports growing by a whopping 107% in this period. The Government has already initiated a safeguard investigation on import of Solar cells, whether or not assembled in modules or panels. The negative growth in the sector has spread to other sub segments like the production of electric heaters (-37.1%), electrical apparatus for Switchings (-2.6%), generators and alternators (-21.6%).

The infrastructure and construction sector with a weightage of 12.34% in IIP has grown by as high as 13.5% with Intermediate sector with weightage of 17.22% in IIP perked up by 5.5%, has been primarily contributed by production growth in steel sector (steel being a component of these two segments) which has observed a growth of 16.6% (core sector growth) in November’17 with production of HRC/sheets at 37.2% growth in November and HR plates at 22.8% growth in the month indicate that there is a uptick in consumption. That brings us to the consumption growth of steel in April-December period. At around 65 MT, the consumption has grown at 5.2% and is likely to end the year at 5.8-6% and optimistically reaching 6.3% growth. Data reveal that construction and infrastructure sector accounting for more than 60% of steel demand is to reach 3.6% growth in FY18 (advance estimates)compared to 1.6% growth in FY17 and electricity, gas and water supply sectors to grow by 7.5%. It has already brought in higher consumption of TMT/wire rods (1%), railway materials (19%), plates (1.7%), HRC (10.6%), coated products (14.5%). As restocking process has gained prominence due to rising price level, more than reasonable price rises are ruling at the market for TMT, wire rods, HRC and CRC.

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