Poor start to fiscal year: IIP shrinks 0.8% on weak capital goods, manufacturing

The fall in industrial production was mainly on account of a 3.1 per cent drop in manufacturing output, which also has the maximum weight in the overall index.

By: ENS Economic Bureau | New Delhi | Updated: June 11, 2016 3:35 am
IIP, IIP rate, IIP india, Industrial output, Industrial production, Factory output, Factory production, The fall in industrial production was mainly on account of a 3.1 per cent drop in manufacturing output, which also has the maximum weight in the overall index.

After two consecutive months of growth, factory output in India faltered in April on account of a poor showing by the manufacturing and capital goods sectors.

Led by a 3.1 per cent contraction in manufacturing, the Index of Industrial Production (IIP) contracted 0.8 per cent in April, compared with a 0.1 per cent growth in the previous month, the data released by Central Statistics Office (CSO) showed. Factory output had expanded by 3 per cent in April last year. The dip in the manufacturing sector in April, which constitutes over 75 per cent of the index, comes after it had recorded a growth of 3.9 per cent in same month last year. Worrying still is that fact that the capital goods segment, a barometer of investment demand, contracted 24.9 per cent in April. After the latest data, the capital goods segment has now contracted for six consecutive months. Consumer durables expanded by 11.8 per cent.

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A dip in the production of consumer non-durables, or FMCG products, by 9.7 per cent pushed down the overall growth of consumer goods sector, which contracted by 1.2 per cent in April. The disappointing data for April may add to the clamour for rate cut by the Reserve Bank of India. The RBI had held to its policy rates in its monetary policy review on Tuesday, citing higher-than-anticipated upsurge in inflationary pressures. The IIP had declined by 1.6 per cent this January and then registered a growth of about 2 per cent in February this year. The provisional estimate of 0.1 per cent growth in March this year was revised slightly upwards to 0.3 per cent.

On the positive side, power generation recorded a growth of 14.6 per cent as against a dip of 0.5 per cent a year ago. The mining sector, showed some improvement recording a growth of 1.4 per cent as against a contraction of 0.6 per cent a year ago. Overall, 9 of the 22 industry groups in manufacturing sector showed negative growth in April 2016 as compared to year ago period. Analysts expect that above-normal rainfall projected by the Indian Meteorological Department after two years of deficient rainfall could boost rural demand while the implementation of the 7th Pay Commission report is likely to boost urban demand.

April Data may add to the clamour for a rate cut

* Led by a 3.1% contraction in manufacturing, the Index of Industrial Production contracted 0.8% in April, compared with a 0.1% growth in previous month
* The dip in manufacturing, which constitutes over 75% of the index, comes after it had recorded a growth of 3.9% in same month last year

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