- India's industrial production for August 2012 rose 2.7%, beating expectations and reversing negative growth from the previous two months. - Manufacturing output increased 2.9%, led by growth in basic goods, intermediate goods, consumer durables and non-durables. However, capital goods declined. - While the IIP number indicates some recovery in manufacturing, the improvement is seen as stabilizing activity rather than a strong upturn, and factory output growth remains weak.

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AUGUST IIP NUMBER BEATS SLOWDOWN
India's industrial production data release on Friday rose by 2.7% modestly. The
three sectors that constitute the index are Mining, Manufacturing and
Electricity. The monthly growth rates of these three sectors for the month are
2.0%, 2.9% and 1.9% respectively.
Manufacturing, which constitutes about 76 percent of industrial production, rose
an annual 2.9 percent from a year earlier. In the April-August period, industrial
production expanded an annual 0.4 percent. August IIP showing turnaround the
overall factory output, as measured by the Index of Industrial Production (IIP),
grew at a slower pace than 3.4 percent recorded in August 2011. Manufacturing,
which accounts for the bulk of industrial production, rose 2.9 percent in August,
lower than 3.9 percent from a year ago.
There has been negative growth in capital goods (-1.7%) whereas positive
growths have been achieved in basic goods (2.8%), intermediate goods (1.9%),
consumer durables (4.0%) and consumer non-durables (5.8%). The Indices of
Industrial Production for the Mining, Manufacturing and Electricity sectors for
the month of August 2012 stand at 117.3, 176.6 and 152.2 respectively, with the
corresponding growth rates of 2.0%, 2.9% and 1.9% as compared to August
2011.
The cumulative growth in the three sectors during April-August 2012-13 over
the corresponding period of 2011-12 has been (-) 0.6%, 0.0% and 4.8%
respectively. In terms of industries, thirteen (13) 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 August 2012 as compared to the
corresponding month of the previous year.
HIGH POSITIVE GROWTH : Telephone Instruments Including Mobile
Phones & Accessories’ (18.0%), ‘Antibiotics & its Preparations’ (43.0%),

2. ‘Carbon Steel’ (51.5%), ‘Conductor, Aluminum’ (68.3%), ‘Air Conditioner
(Room)’ (76.9%), ‘Tea’ (20.1%), ‘Boilers’ (21.9%), ‘CR Sheets’ (24.9%),
‘Plastic Machinery Incl. Aerated Waters & Soft Drinks’ (55.5%).
HIIGH NEGATIVE GROWTH : Cable, Rubber Insulated’ [(-) 64.1%],
‘Passenger Cars’ [(-) 17.5%], ‘Sponge Iron’ [(-) 20.4%], ‘Tractors’ [(-) 20.1%],
‘Vitamins’ [(-) 36.1%], ‘Furnace Oil’ [(-) 27.4%], ‘Aviation Turbine Fuel’ [(-)
28.3%], ‘Earth Moving Machinery’ [(-) 19.6%], ‘Cigarettes’ [(-) 17.6%],
‘Ayurvedic Medicaments’ [(-) 25.2%] and ‘Fruit Pulp’[(-)36.3%].
EFFECT ON ECONOMY: The improvement in IIP is encouraging but
still indicative of activity stabilizing rather than signaling a sustained and strong
upturn. Reversing the trend of contraction witnessed during the previous two
months. IIP numbers indicate there is some turnaround as far as manufacturing
sector is concerned. Factory output data is much better than expectations, but it
is still not a very healthy number. The data has been a sentiment changer as the
IIP numbers have been disappointing for some time and the better than expected
numbers The IP numbers are not widely accepted as genuine or major numbers
but shall continue to add to the sentiments.
Though much of the upside was largely pushed by the favorable base effect and
sharp increase in capital goods, the stability and recovery in intermediate goods
gives some comfort, thus indicating an improvement in the production
activities.
EFFECT ON EQUITY MARKET: Markets showed muted reaction to
the data. Market discount 32 points after releasing the data .The 10-year bond
yields briefly fell, but then recovered to 8.17 percent, the rupee weakened
slightly to 52.75 from 52.70 beforehand. Both the 1-year and 5-Year swap rates
edged down 1 basis point each to 7.60 and 6.99percent respectively.