Large Scale Manufacturing is back in business. Or so it seems. After slipping to an average growth of 5.5 percent in 1HFY18, LSM's benchmark index has posted a growth of 6.3 percent in the seven months ending January 2018. This is substantially better than the growth of 3.45 percent in 7MFY17, and 4.64 percent in 7MFY16. What has caused this change in January 2018?

The answer to that is in two parts. First, is the growth in items for reasons already much talked about in preceding months' LSM coverage. These include autos, and construction sectors, where January 2018 saw notable growth in cement, LCVs, trucks, and billets/ingots. Second, is the picking up of growth in sugar, cigarettes and petroleum sectors. The growth in petroleum products was much expected. Recall that the after the LNG-furnace oil saga, some refineries had shut their operations in November and December 2017.

With refineries resuming operations December onward, it was inevitable for petroleum production to pick up pace.

Meanwhile, cigarette production continues to grow as illicit cigarettes are gradually thinning from the market thanks to a host of budgetary measures taken by the government last year. The full year cigarette production is expected to grow 68 percent, according to BR Research's analysis published earlier this month. (See 'Cigarettes: on a roll', published March 5, 2018).

The production of sugar has also supported LSM's growth in January 2018; a whopping 17.6 percent growth year-on-year to 1.7 million tons of production in January 2018. However, given the high base of 1.5 and 2 million tones in February and March 2017 respectively, and the easing of the production cycle in the last quarter of each fiscal year, growth in sugar production should not be expected to buttress LSM in the ensuing months beyond the level seen in January 2018.

What's most disturbing is the lack of growth in textile, which is the single biggest driver of the LSM index. It enjoys a weight of more than 20 percent. Yet, seven months into the fiscal year, the sector's production growth remains flat. From what it appears, growth in this all-important sector will remain flat for the full fiscal year as well, as refunds delays, factory shut downs, and high cost of energy have offset the impact of improved power supply, textile packages, and exchange rate depreciation. (See BR Research, 'Will textile output post zero growth in FY18?', March 8, 2018).