Large Scale Manufacturing (LSM) index jumped 14.5 percent in November 2020,arguably the fastest year-on-year growth ever. And with that growth the5MFY21 number has landed at 7.4 percent, which is also among the best5-month performance in the last ten years.
Although LSM growth might not be as pronounced between December andFebruary, it does seem now that the Planning Commission’s full yearforecast of 2.5 percent LSM contraction is a huge underestimation.
Until October 2020, growth in LSM was led by handful of items tracked bythe index, notably construction and cigarettes. The recovery had lacked thebreadth one would have liked to see before shouting hooray. Come November2020, breadth of recovery has expanded as is visible from the graph showingnoticeable decrease in the number of items whose production has beencontracted over last year.
It is true that only three items – cigarette, cooking oil and wheat & grainmilling – have driven growth in ‘food, beverages and tobacco’ sub-sector,which has contributed the most to growth in LSM in November 2020. Equallytrue that if one also shaves off growth in cement production, overall LSMgrowth would be much lower; such is the lopsided nature of LSM growth sofar.
However, the breadth of recovery has noticeably improved. In fact, thenumber of items reporting a decrease in production were the least inNovember 2020, helped in part by broad based recovery in pharmaceuticalsand chemical industry.
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As argued in BR Research’s earlier *coveragelink*, on aggregate basis the 1QFY21signaled first decent growth after a hiatus of several quarters, leading tohope that the *worst was probably overlink*. With sugar output likely to beat least 10 percent higher this year, amid other drivers such asconstruction and auto sectors, overall LSM growth is likely to be muchbetter than previously expected.
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