It may be too early to make a bet, but the recently released LSM numbers hold a lot of promise for the ongoing fiscal year. Take a good look at the graph showing growth in benchmark manufacturing index for the two months ending August 2017. It stands at about 11 percent; such a 2M growth hasn’t been seen in recent memory.
Two-month LSM index data prior to FY12 is not readily available on PBS website. But it’s safe to say that this year’s growth so far is perhaps the highest in a decade; after all growth was largely missing between FY08 and FY13. Recall also that FY17 saw LSM posted a 10-year high growth (See BR Research column: Is 10-year LSM growth high a moment of hurrah? Aug 23, 2017) The drivers of this year’s growth are by and large the usual suspects. Amid strengthening consumerism, cigarette production has shot through the roof following the changes in duties that this column discussed in last month’s LSM coverage (See Manufacturing growth, Sep 25, 2017). Similar, consumerism-led growth momentum continues in the food sector at large, notably cooking oil, and vegetable ghee.
Meanwhile, increased spending on PSDP has led to a widespread growth in construction and infrastructure related activities in the economy, which in turn have stoked growth in cement and steel. The imposition of anti-dumping duties on Chinese steel products and favourable prices of raw material has also manufactured growth in steel products such as billets and hot/cold rolled sheets.
Another key driver of LSM growth is the transport sector. After a lax period last year when growth slowed following the conclusion of Apna Rozgar Scheme that led to a steep contraction of 32.3 percent in LCV segment, growth in this sector is back on track.
While LCV growth remains weak in 2MFY18 (0.8%), that in motorcycle and jeeps and cars is revving up; the former grew 23 percent year-on-year in 2MFY18, the latter a whopping 34 percent. A corresponding increase in petroleum products led by motor spirits used by transport sector is very much noticeable. Tractor production has also more than doubled in 2MFY18 in continuation of the upwards trend that began following the Kissan package in November 2015. While cotton yarn and cloth that have a combined weight of about 20 percent in LSM index remain weak, following the recent textile package, the ensuing months can be expected to bear witness to growth in this sector. Behind the rosy growth picture, however, the questions that loom large are two: how long would packages prop manufacturing in this country; and how long would import-based production grow at a time when growth in the supply of dollars is fragile.
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