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Large-Scale Manufacturing (LSM) continued the upward journey, posting 12.84 percent growth for Jul-Apr FY21 – highest cumulative increase in nearly four years. The April increase came at a staggering 68 percent year-on-year, as the low base from last year’s nationwide lockdown came in full play. The LSM monthly index has recorded highest monthly values for six of the ten months in FY21 so far. The cumulative index value for three straight months has remained the highest ever. The trend goes against the assertion from other quarters that maintain the industrial production is still sluggish. While LSM is not representative of the entire industrial activity, the LSM activity at all-time high does indicate the output gap in the broader industrial economy should also be narrowing pretty quick, if it has not already.

Food (beverages, and tobacco), textile and cement sectors have jointly led the growth – constituting three-fourth of the cumulative growth impact for 10M FY21. Cement and automobile sectors have headlined the growth story in the post lockdown, low-interest rate period. With a combined share of 10 percent in the LSM index, the impact to the cumulative growth is nearly two-fifth.

Both these sectors, for fundamental reasons of their own and the prevalent interest rate scenarios are poised to continue positive growth trajectory, going forward. The wage negotiations in the private sector as a result of 10 percent increase by federal and Punjab government, may lead to net positive real wages for the first time in over two years, which should keep the food, beverages and tobacco sector going too.

A more-than-decent crop season for wheat and sugar has also meant grain milling and crushing activities have contributed a significant chunk to the overall growth, being large constituents of the food sub-index. Smokers have not let down either, leading to 20 percent year-on-year growth in 10MFY21, allowing 45 billion sticks. Tough breed!

As the government has indicated continuation of both the industrial support package and zero-rated subsidy for electricity usage, textile industry should gradually pick pace as well. Recall that the sector’s entire chain is not captured, owing to the limitations of the LSM methodology, but even cotton based textile has shown signs of decent growth.

The full year FY21 LSM growth could clock anywhere between 13-14 percent, besting the official estimate by a significant margin. All else constant, this alone could send the GDP for FY21 to 4.5 percent and thereabouts.


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