Green shoots in IIP wither in October

Factory output for October contracted 4.2 per cent, lowest in three years.

By: ENS Economic Bureau | New Delhi | Published: December 13, 2014 3:16:50 am
manufacturing-l During the April-October period, the sector contracted 6.3 per cent, compared to a decline of 1.7 per cent in the same period of 2013-14. (Source: Reuters photo)

Factory output for October contracted 4.2 per cent, lowest in three years, as the manufacturing and consumer goods sectors performed dismally during the month. The contraction, the first this fiscal, has dashed hopes of an early economic recovery with India Inc raising concerns over the falling consumption demand.

The government, meanwhile, revised the September growth in the index of industrial production (IIP) to 2.8 per cent against 2.5 per cent announced earlier.

Private consumption, for long a laggard, plummeted further and manufacturing growth hit a three-year low by contracting 7.6 per cent in October, according to the IIP data, which gauges the factory output in the country. The sector comprises over 75 per cent of the index and is the focus of the new government, which has announced ‘Make in India’ policy to promote manufacturing.

Reflecting falling demand, even during the festive season, the production of consumer goods contracted by 18.6 per cent in October as against a decline in output at 5 per cent registered during the corresponding period last fiscal. During the April-October period, the sector contracted 6.3 per cent, compared to a decline of 1.7 per cent in the same period of 2013-14.

Industry body Ficci said that the fall “reflects slowdown in investments but also the deep-rooted slackness in consumer demand which requires bringing down the interest rates urgently. It would also need faster implementation of government’s intentions to introduce reforms in which states have major role to play… despite being a festive month, growth of consumer goods especially durables has been negative”.

Production in the capital goods sector, a barometer of investment in the country, declined by 2.3 per cent in October, as against a growth of 2.5 per cent in corresponding month of last year. During the eight-month period, the output of capital goods grew by 4.8 per cent as against a dip in production by 0.2 per cent.

Overall, the IIP rose 1.9 per cent in April-October period, as against 0.2 per cent in corresponding period of last fiscal. Of the 22 industry groups in manufacturing, 16 witnessed contraction during the month.

Electricity generation during the month, however, grew by 13.3 per cent compared to a growth of 1.3 per cent during the corresponding period last year. The production in the mining sector also witnessed a growth of 5.2 per cent as against a contraction of 2.9 per cent during the year-ago period.

Analysts, however, pointed at some bright spots. “Given the fewer number of working days on the account of the shift in the festive calendar, the sharp contraction in manufacturing output in October should not be construed as a cause for alarm,” said Aditi Nayar, senior economist with ICRA.

She said indicators, including a 12 per cent rise in automobile production in November after a 5 per cent drop in October, suggest an uptick.

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