The majority of the available volume-based indicators of the formal sector recorded an improved growth in August 2017, as the initial hiccups associated with the transition to the goods and services tax (GST) started to subside in some industries. However, four of the 16 sectors recorded a year-on-year (YoY) contraction in that month, led by factors such as an unfavourable base effect (petrol and diesel consumption) and the deficit in monsoon rainfall (hydro generation). Overall, a sustainable upturn in economic activity remains elusive.
· The growth in aggregate auto production improved to an 11-month high 13.6% in August 2017 from 10.8% in July 2017, as firms continued to rebuild stocks after the switchover to the GST. This sequential pickup was led by passenger vehicles (PV; to +5.0% from +1.6%), motorcycles (to +19.0% from +15.0%) and scooters (to +12.5% from +12.3%), whereas the growth of commercial vehicles (CV) moderated to 7.8% in August 2017 from 12.4% in July 2017.
· Benefitting from a favourable base effect, Coal India Limited’s (CIL’s) output rebounded to a high 16.0% in August 2017 after having contracted since April 2017. Moreover, the pace of growth of thermal electricity generation increased substantially to 14.9% in August 2017 from 4.2% in July 2017. However, hydro electricity generation posted a steep contraction of 12.1% in August 2017 (+2.2% in July 2017), largely in line with the 12.4% deficit in rainfall in that month (relative to the long period average).
· Cargo handled at major ports reverted to a YoY contraction of 0.3% in August 2017 from the mild growth of 1.4% in July 2017. Although the growth in non oil merchandise exports in US$ terms rose to 6.9% in August 2017 from 1.8% in July 2017, anecdotal evidence suggests that some firms continued to experience stress following the rise in working capital requirements after GST.
· The YoY growth of rail freight rose to a healthy 7.7% in August 2017 from 5.6% in July 2017. However, diesel and petrol consumption contracted by 3.7% and 0.8%, respectively, in August 2017, in contrast to the expansion in July 2017 (+8.5% and +11.7%, respectively). This deterioration can be attributed to an unfavourable base effect, the rise in prices of petrol and diesel, and lower demand for diesel to run generators following healthy thermal electricity generation.
· The pace of growth of ATF consumption improved mildly to 10.6% in August 2017 from 10.4% in July 2017, while growth in passenger traffic by domestic airlines increased to 15.6% in August 2017 from 12.4% in July 2017.
· The YoY growth of non food credit rose to 7.1% on August 18, 2017 from 6.0% on July 21, 2017, and that in bank deposits increased to 10.3% from 9.7%, respectively.
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