Large scale industrial activity has remained upbeat this fiscal year. While there is nothing record-shattering about the LSM growth rates, the steady increase and broad-based growth spread over a variety of sectors is a welcome sign. The monthly and 9M cumulative QIM indices are at highest-ever levels, and a 10 percent growth in 9MFY22 is just representation of how things are shaping up.

March 2022 growth of 26 percent year-on-year is the highest jump for any month barring the Covid quarter impact from Mar-May 2021. Around three-fourth of the 123 items recorded for LSM tabulation, show year-on-year growth. The share of items registering increase has been steadily increasing over the past six months – from less than 60 percent at the start of 2QFY22.

The growth on the previous based and methodology of 2005-06has also increased steadily – recorded at 7 percent for 9MFY22. The record sugarcane crop and the resultant sugar production have contributed significantly to the overall growth. Sugar production jumped 527 percent year-on-year in March 2021, and the 9MFY22 growth sits at a healthy 38 percent year-on-year. Going by the trend so far, April production growth could well be even higher than March’s, given only 25,000 tons was produced in April 2021. All things indicate, April 2022 could see sugar production go up massively with a weight of 3.4 percent in overall index – sugar is likely to lead April LSM as well.

And then comes the problem that the rebased LSM has become. Recall that it now comprises of a broader base with more items, reassigned weights, and a larger sample size to choose from. But the flawed methodology, due to constraints of provincial data gathering agencies, puts a big question mark on the outcome. The LSM growth now has a heavy reliance on monthly quantity of exports across newly inducted categories.

Of all newly inducted categories, wearing apparel has the single largest weight of 6 percent – but the growth recorded as LSM only represents export quantity of readymade garments. For March 2022, readymade garment exports grew 78 percent year-on-year, and that fed into LSM growth. For April the growth would be recorded even higher at 106 percent – despite the value growing by only 43 percent.

Same is the case with furniture and football export growth – which have consistently been having high impact on LSM despite negligible weights. Furniture exports barely touch $1 million a month on most occasions, but in the last two months – made third and fourth largest contribution to overall growth. That is likely to cool down now – as the growth has eased from 555 percent two months ago to 227 percent.

Overall LSM growth appears on solid footings, but the recent rise in interest rates and the round of inflation, may pose a challenge.