India's Industrial Sector Downshifts in July After Spring Acceleration

Industrial production in India has declined for two months now, with the July data out today showing a 3.2% drop from June in figures seasonally adjusted by Haver Analytics. This pulled July's year-on-year growth to 7.1% (not seasonally adjusted) from 10.4% in Q2 and 12.5% in Q1. The peak individual growth month was November 2006, which was a striking 15.8% above November 2005.

In the manufacturing sector, which makes up 79% of this index, a variety of industries have participated in this recent slowing. Wood products are perhaps most notable: including furniture and fixtures, this group lurched upward dramatically from December through March and moved irregularly after that, falling nearly 24% in July. The same pattern, though less extreme, is found in machinery production. It fell in the latest month by 9.5%, but, as seen in the second graph, it had expanded greatly in May, by 14.5% in fact, to an elevated level. We plot it here along with total manufacturing and another leading industry, rubber, plastics and petroleum. To see their movements in relation to each other, we can use Haver's DLXVG3 "scale option" to put all of these series on some convenient index base; here, if we use 2005, we see that overall, the broad manufacturing sector along with the machinery industry and the rubber & plastics products group have grown along very similar trends since 2005. The July decline in machinery only just brought it back in line with the others.

Not all industries show this exact behavior, up in the previous few months and then down in July. Others seem to be plateauing following an earlier run-up. Examples cut across industry types: basic metals, nonmetallic mineral products and chemicals. Only transportation equipment appears to be in an outright downtrend.

The one sector among Indian industries that is growing persistently is electric utilities. Electrical output was up 7.5% in July from a year ago. As the final graph shows, year-to-year growth rates are highly volatile. So, using DLXVG3's new nesting capability, we've averaged them over 12-month periods to find the trend. The July value of this measure is 7.9% and was 8.0% in June. These two months are the strongest since Q1 of 1996, more than 11 years ago. Overall industrial production grows faster, but notably in recent months, as the broader measure has gyrated, the electricity sector has moved more steadily higher. This means that non-industrial users are finding new ways to utilize electric power, taking up the slack when industry slows.