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Large Scale Manufacturing (LSM) inched further ahead, registering 14.57 percent growth for 11-month period ending May 2021. The monthly number for May 2021 showed an increase of 36.84 percent year-on-year, continuing with the low base impact that was triggered due to Covid related nationwide lockdown in 2020 in April and May. The cumulative 11MFY21 increase is the highest in recallable memory, surpassing earlier projections.

May 2021 index value is the highest monthly value ever, signaling that the turnaround is well and truly just beyond the low base impact of Covid. For seven of the eleven months of the fiscal year, the monthly LSM index has returned highest ever values. That should be narrowing the output gap rather quickly, and it won’t be surprising if the output gap changes posts from negative to positive zone. Granted that the LSM does not represent the entire industrial activity in the country, but the momentum elsewhere also shows things are picking up rather quick – and early signs of heating up may start to appear, as imports swell.

In terms of sectoral LSM growth, automobile and cement lead the way. Cement is by far the runaway growth story of FY21, with strong double-digit growth based on strong organic demand growth. For automobile, the growth is strong, but the base effect is in play here as the values are still some way off from the highs seen earlier in FY18. Steel and fertilizer sectors too have chipped in with decent contribution, with nitrogenous and phosphate fertilizer production recording all-time highs, on the back of improved fuel availability.

The food index has also shown considerable growth, mainly led by sugar and wheat. Sugar production is still considerably lower than the high seen in FY18. In case of wheat, the record production is reportedly a result of more millers having to started to report data. That said, 46 percent year-on-year growth in wheat milling should be high enough to put the number near all-time high, if not the highest already.

The industrial support package has continued and so has the export subsidies for energy prices. Lower value-added textile chain appears to be he biggest beneficiary of the central bank’s concessionary financing schemes. That should ideally lead to higher growth from cotton yarn and cloth segments, going forward, once all disbursements are complete.

With just a month to go, FY21 LSM growth could well be north of 13.5 percent, even if June does not return the highest ever monthly index value. This is 400 basis points clear of what the national accounts have estimated. Broad based or not, the growth will be enough to take the GDP estimates for FY21 closer to 4.5 percent, all things constant.


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