First contraction in two years, IIP dips 1.1% in Augusthttps://indianexpress.com/article/business/economy/factory-output-industrial-growth-rate-iip-dips-6065100/

First contraction in two years, IIP dips 1.1% in August

The slide in the headline IIP numbers has been triggered by a contraction in manufacturing and electricity, alongside a record contraction in the production of capital goods — reflective of the weak investment climate.

Factory output dips, IIP dips, industrial production, dip in industrial production, India news, Indian Express
The fall in the IIP number is in line with the contraction in the August core sector, as reflected in data released earlier this month by the industry department.

Factory output contracted 1.1% in August as against a growth of 4.2% reported a month ago, signalling a deepening of the economic downturn. August’s IIP print is the lowest in the last 81 months and the first contraction since June 2017, setting the stage for further monetary easing of benchmark interest rates in the next policy review in December.

The slide in the headline IIP numbers has been triggered by a contraction in manufacturing and electricity, alongside a record contraction in the production of capital goods — reflective of the weak investment climate. A slide in the output of infrastructure goods and consumer durables offers pointers to the underlying weak demand conditions.

The fall in the IIP number is in line with the contraction in the August core sector, as reflected in data released earlier this month by the industry department, which showed that India’s eight infrastructure sectors — constituting about 40% of the IIP — contracted for the first time in more than four years in by 0.5% that month.

Data released by the Ministry of Statistics Friday showed that manufacturing and electricity contracted 1.2% and 0.9% respectively, while mining output remained almost flat growing at 0.1%.

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The RBI’s Monetary Policy Committee earlier this month had cut policy rates by 25 basis points and resolved to continue with an accommodative stance “as long as it is necessary to revive growth”. The central bank also pared down its full year growth forecast to 6.1% in 2019-20 from 6.9% projected earlier. Moody’s Investors Service on Thursday projected a low 5.8% growth for India in FY’20 — the lowest growth estimate issued so far by any agency for the current fiscal.

According to the data, among used-based industry groups, only primary goods (1.1%), intermediate goods (7%) and consumer non-durable (4.1%) recorded positive growth and the other three sectors contracted – capital goods (-21%), infrastructure/construction goods (-4.5%) and consumer durables (-9.1%).

In two-digit classification, 15 out of 23 groups contracted, with analysts pointing to the possibility of pre-stocking due to festive demand in September and October not having taken place. Only food products and wearing apparels has shown some growth. The highest contraction was seen in motor vehicles, trailers and semi-trailers (-23.1%), transport equipment (-13.6%), paper (-12.6%), textiles (-7.6%) among others.

“IIP has been very volatile and the small momentum of couple of months fizzles out soon. Going forward, the IIP is likely to show erratic low growth trend. The policy measures announced by the government after first quarter GDP growth of 5% are more supply side interventions and unlikely to boost demand. With no fiscal space available to the government, it is unlikely that the demand in going to return back soon. The Indian economy is presently facing a structural growth slowdown originating from declining household savings rate, and low food inflation and agricultural growth. Low agricultural growth is feeding into low agricultural and non-agricultural wage growth in rural areas, which is impacting rural demand adversely,” Devendra Kumar Pant, Chief Economist and Senior Director, Public Finance, India Ratings & Research (Fitch Group) said.