Analyst Report : IIP Index , June 2015

The quick estimated Index of Industrial Production (IIP) data for the month of April 2015 with base year 2004-05 was released by the Central Statistics Office of the Ministry of Statistics and Programme Implementation on 12^thJune, 2015. The general index for April 2015 has been appreciated by 4.1% compared to its level in April 2014.

Ministry of Statistics and Programme Implementation compiles IIP index from the inputs given by following 16 source agencies:

1.      Department of Industrial Policy & Promotion (DIPP);

2.      Indian Bureau of Mines;

3.      Central Electricity Authority;

4.      Joint Plant Committee;

5.      Ministry of Petroleum & Natural Gas;

6.      Office of Textile Commissioner;

7.      Department of Chemicals & Petrochemicals;

8.      Directorate of Sugar;

9.      Department of Fertilizers;

10.  Directorate of Vanaspati, Vegetable Oils & Fats;

11.  Tea Board;

12.  Office of Jute Commissioner;

13.  Office of Coal Controller;

14.  Railway Board;

15.  Office of Salt Commissioner

16.  Coffee Board.

On 12^th June 2015, quick estimates of IIP data were published. Standard protocol is to go through first and final revision in coming months eventually.

Sectoral bifurcation in Appendix I indicates that manufacturing sector has contributed the most (5.1%) for pushing the production growth in the country. Although electricity sector grew most, cumulatively during April-March 2014-15 over the corresponding period of 2013-14, it shows shrinking behaviour in the latest data (-0.5%).Mining sector seems to have low growth (0.6%) compared to April last year.

Energy statistics data suggests that typically major portion (almost 60%) of coal is consumed for electricity production. Appendix II shows growth rates of eight core industries. The coal industry has grown by 7.9%. Although there has been a hike in coal production, the electricity production growth has declined. This puts a question on the infrastructural capacity to produce electricity even if coal is available.

Without electricity production growth, manufacturing growth also seems temporary. If electricity growth does not pick up in the near future, manufacturing growth may face energy constraints.

Appendix III shows that sixteen (16) out of the twenty two (22) industry groups (as per 2-digit NIC-2004) in the manufacturing sector have shown positive growth during the month of April 2015 as compared to the corresponding month of the previous year. Food and beverages products, having the highest weight of 72.76 in the calculation of IIP index, have grown at the rate of 4.9%.

Appendix III shows industrial groups sorted by their growth rates.

Looking at the data, decline in Office, accounting & computing machinerymight hamper the growth rate of service industry. Trends of things gradually being put online may be the reason for reduction of use of these products.

Decline in tobacco products is the result of the government’s effort to reduce the use of tobacco. Stiff increase in tobacco and cigarette taxes and stringent packaging norms may have contributed to this decline.

Impressive growth numbers in the growth of Machineries and Equipment n.e.c and Electrical machinery & apparatus n.e.c. may hint towards the increase in production growth for basic goods in near future but they have to be backed by basic production amenities like electricity etc. To continue high growth rate in such machineries and equipment, metal production should also gear up which is currently much slower than the required rate.

Wood and products of wood & cork except furniture; articles of straw & plating materials grew at 16.2% while Furniture production grew at just 8.2%. The furniture industry still holds a big scope for expansion and can be expedited by the growth of real estate. But Appendix V suggests that cement industry faces very high negative growth, and that may impede the growth of real estate in the country.

Growth in Publishing, printing & reproduction of recorded media and Paper and paper products are going hand in hand. We can expect steady growth in that industry in near future.

Use-based classification is shown in Appendix IV. The highest growth is registered by capital goods (11.1 %). Growth in capital goods indicates a start of new investment cycle which may reap its benefits in coming years. Growth in basic goods has declined to 2.8% from 8.6% in the same month last year. Intermediate goods grew at 3.3% compared to 3% in April last year.

Some individual items showed radically high and low growth rates, which are mentioned in Appendix V.Highest positive and negative contributors are mentioned in Appendix VI.

Increase in plastic machineries may carry growth of plastic raw materials and production of plastic items. Since Tea production is increasing, we may expect other hot beverages like coffee to face reduction in market share. Increase in production of boilers may indicate new production capacities. Decline in production of computers and telephonic instruments may impact the growth of service industry.

Overall this surprisingly good IIP index data has brought a new hope in Indian Economy and let’s hope the economy pushes the production growth to new heights in coming years.

Appendix

Appendix I

* Indices for Apr 2015 are Quick Estimates.

Appendix II

Eight core industry growth rate

(Base: 2004-05 = 100)

GROWTH RATES (in %)
Sector	Coal	Crude Oil	Natural Gas	Refinery Products	Fertilizers	Steel	Cement	Electricity	Overall Index
Weight	4.379	5.216	1.708	5.939	1.254	6.684	2.406	10.316	37.903
Apr-14	6.2	-0.1	-7.7	-1.9	11.1	6.9	7.3	11.9	5.7
May-14	5.5	-0.3	-2.2	-2.3	17.6	-2	8.7	6.3	2.3
Jun-14	8.1	0.1	-1.7	1.2	-1	4.2	13.6	15.7	7.3
Jul-14	6.2	-1	-9	-5.5	-4.2	-3.4	16.5	11.2	2.7
Aug-14	13.4	-4.9	-8.3	-4.3	-4.3	9.1	10.3	12.6	5.8
Sep-14	7.2	-1.1	-6.2	-2.5	-11.6	4	3.2	3.8	1.9
Oct-14	16.2	1	-4.2	4.2	-7	2.3	-1	13.2	6.3
Nov-14	14.5	-0.1	-2.9	8.1	-2.8	1.3	11.3	10.2	6.7
Dec-14	7.5	-1.4	-3.5	6.1	-1.6	-2.4	3.8	3.7	2.4
Jan-15	1.7	-2.3	-6.6	4.7	7.1	1.6	0.5	2.7	1.8
Feb-15	11.6	-1.9	-8.1	-1	-0.4	-4.4	2.7	5.2	1.4
Mar-15	6	1.7	-1.5	-1.3	5.2	-4.4	-4.2	1.7	-0.1
Apr-15	7.9	-2.7	-3.6	-2.9	-0.04	0.6	-2.4	-1.1	-0.4

Source:  Government of India Ministry of Commerce& Industry, Department of Industrial Policy & Promotion, Office of the Economic Adviser publication

Appendix III

Index of Industrial Production - Percentage Growth
(Base : 2004-05 = 100)
Description	Weight	Apr-15	Apr Mar 2014-15
Office, accounting & computing machinery	3.05	-36.5	-38
Radio, TV and communication equipment & apparatus	9.89	-34	-54.4
Tobacco products	15.7	-26.7	0.9
Other non-metallic mineral products	43.14	-6.7	2.6
Coke, refined petroleum products & nuclear fuel	67.15	-2.9	0.8
Medical, precision & optical instruments, watches and clocks	5.67	-1.6	-2.3
Electricity	103.16	-0.5	8.4
Mining & Quarrying	141.57	0.6	1.4
Fabricated metal products, except machinery & equipment	30.85	2.5	-0.7
General Index	1000	4.1	2.8
Textiles	61.64	4.4	2.8
Food products and beverages	72.76	4.9	4.7
Manufacturing	755.27	5.1	2.3
Paper and paper products	9.99	5.2	3.2
Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products	5.82	5.4	10
Other transport equipment	18.25	5.4	6.4
Rubber and plastics products	20.25	6	4.7
Publishing, printing & reproduction of recorded media	10.78	6.1	-4.1
Motor vehicles, trailers & semi-trailers	40.64	6.9	2.5
Basic metals	113.35	7.3	12.7
Furniture; manufacturing n.e.c.	29.97	8.6	7.3
Chemicals and chemical products	100.59	9.5	-0.1
Wearing apparel; dressing and dyeing of fur	27.82	10.1	5.2
Electrical machinery & apparatus n.e.c.	19.8	13.4	21
Wood and products of wood & cork except furniture; articles of straw & plating materials	10.51	16.2	4.3
Machinery and equipment n.e.c.	37.63	20.6	3.9

Appendix IV

Appendix V

Most positive Growth
Plastic machinery including moulding machinery	266.40%
H R Sheets	157.50%
Paraxylene	95.00%
Conductor, Aluminium	92.00%
Cashew Karnels	52.40%
Vitamins	48.30%
Boilers	40.30%
Air Conditioner (Room)	34.40%
Copper and Copper Products	33.40%
Tea	33.20%
Carbon Steel	32.50%
Block Board	26.30%
Three-Wheelers (Including passenger and goods carrier)	24.00%
Sugar	22.90%
Most negative Growth
Cigarettes	(-) 52.8%
Grinding Wheels	(-) 46.5%
Computers	(-) 46.4%
Telephone Instruments (incl. Mobile Phones & Accessories	(-) 43.0%
Cement Machinery	(-) 38.9%
Tractors (complete)	(-) 35.2%
Aviation Turbine Fuel	(-) 29.3%
Aerated Waters and Soft Drinks	(-) 23.5%

Appendix VI

Item Group	Weights (%)	Contribution
High Positive Contributors
Plastic Machinery Incl. Moulding Machinery	0.26	0.5439
Air Conditioner (Room)	0.29	0.5162
Carbon steel	0.78	0.404
sugar(including sugar cubes)	1.52	0.3988
Conductor, Aluminium	0.2	0.3645
High Negative Contributors
Telephone Instruments Including Mobile Phone And Accessories	0.22	-0.8571
Cigarettes	0.87	-0.2624
Tractors (complete)	0.38	-0.2404
Cement All Kinds	2.41	-0.1142
Aerated Waters & Soft Drinks	0.25	-0.1142

References

Press Release published by the Central Statistics Office of the Ministry of Statistics and Programme Implementation

http://mospi.nic.in/Mospi_New/site/home.aspx

About Author

This report is prepared by Monil Shah. He is currently pursuing MBA from Institute of Management, Nirma University .

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