The Indian economy has seen major structural changes in last one year starting from demonetization drive in November 2016 followed by implementation of Goods and Services Tax (GST) in July 2017. The economy saw significant shuffles in macro-economic indicators starting from fall in GDP in Q1 of FY18 to 5.7% from 7.9% in Q1 of FY17.

Although the world economy is showing signs of recovery, domestic economy is impacted by severe slowdown in the manufacturing sector which has posted a growth rate of 1.2% in Q1 FY18 from 10.7% in Q1 FY17. Low growth in mining (-0.7%), manufacturing (1.2%), construction (2%) and agriculture (2.3%) has undermined the performance of overall GDP growth.

Talking about the Index of Industrial production (IIP), it is a quantitative index which shows the growth rates in different industry groups of the economy in a stipulated period of time of broad sectors, namely, mining, manufacturing and electricity and use-based sectors, namely basic goods, capital goods and intermediate goods. The growth in industry output (IIP) in cumulative terms from April – September in FY18 rose to 2.48% in comparison to 0.02% during the same period in FY17.

The growth trend in IIP in FY18 began with a great vigour indicating improved industrial productivity and increased output starting from 3.16% IIP growth in April 2017. However, the IIP figure dipped to record low of (-) 0.16% in June 2017 vis-a-vis destocking and teething problems of GST which rebounded to 0.94% in July and saw a major rise to 4.5% in August 17. This month’s (September) IIP data took a turn around by registering downward growth of 3.8% in comparison to the previous month primarily due to weak performance by the electricity sector, primary goods, infrastructure and consumer durables.

The growth in the three sectors mining, manufacturing and electricity in September 2017 stands at 7.9%, 3.4% and 3.4% respectively over September 2016. The cumulative growth in these three sectors during April-September 2017-18 over the corresponding period of 2016-17 has been 3.9%, 1.9% and 5.7% respectively. Primary goods growth stands at 6.6%, capital goods growth stands at 7.4%, intermediate goods growth stands at 1.9%, infrastructure/ construction goods growth stands at 0.5%, consumer durables growth stands at (-) 4.8% and consumer non-durables growth stands at 10% during September 2017 as compared to the previous year.

While the weak performance of infrastructure and construction goods sector is hardly unexpected, the healthy growth recorded by consumer non-durables, primary goods and capital goods is an encouraging sign. The uptick in capital goods at 7.4% in September 2017 indicates that investment activity can revive in the coming months. Core sector growth rose to 5.2% in September from a downwardly revised 4.4% in August. It is believed that the growth slowed over the previous month when restocking after the GST rollout and an earlier onset of festival season had led to a sharp rise in industrial production.

Going ahead, IIP readings are likely to be supported by low base and continued restocking. The recent measures by the government to address concerns related to GST, especially in the MSME segment, will surely give a boost to the IIP growth since IIP growth is the game of improved industrial production. Further, the continuation of the reform measures would pave the way for strengthening of industrial activity in the coming months Although, the current macro-economic indicators do not present a rosy picture, however, the Second quarter GDP figures which would be released in the end of this month would give a better outlook of current macro-economic situation.

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