CONTRACTING for the second consecutive month, factory output for September plunged to (-) 4.3 per cent, with all three sectoral constituents — manufacturing, mining and electricity — recording negative growth, data released by Ministry of Statistics and Programme Implementation (MoSPI) Monday showed.
The manufacturing sector, which carries a weight of 77.63 per cent in the Index of Industrial Production (IIP), contracted for the second month in a row by 3.9 per cent in September compared to a 4.8 per cent growth last year, while mining sector output, with a weight of 14.37 per cent in the index, contracted 8.5 per cent as against 0.1 per cent growth last year, data showed.
This is the lowest level since the latest series (with 2011-12 base year) was released for 2012-13 onwards, whereas in the old series (2004-05 base), it had contracted by 5 per cent in October 2011.
IIP growth was at 4.6 per cent in September last year, while for the previous month, it was further revised down to (-)1.4 per cent from (-)1.1 per cent estimated earlier. Cumulatively, the industrial output for April-September, the first half of the financial year, grew at 1.3 per cent as against 5.2 per cent in the same period a year ago.
The data showed that capital goods, a proxy for investment demand, shrank by over 20 per cent while both consumer durables and consumer non-durables also contracted.
Barring intermediate goods, among the six use-based groups, all other five groups — primary goods, capital goods, consumer durables and non-durables — recorded contraction in September. The contraction in the capital goods sector was recorded for the ninth straight month, with output declining sharply by 20.7 per cent in September as against a 6.9 per cent growth in the corresponding period last year.
The consumption side, too, posted a grim picture, with consumer durables output staying in the negative territory for the fourth consecutive month by contracting 9.9 per cent in September as against a growth of 5.4 per cent, while consumer non-durables sector, consisting of mainly the fast-moving consumer goods, recording a contraction of 0.4 per cent as against 6.4 per cent growth last year. This, analysts said, belies any hopes of a pre-festive restocking of inventories.
Despite elevated retail inflation, the slowing industrial growth raises hopes of another rate cut by the Reserve Bank of India (RBI) in the upcoming December policy meeting with economists expecting IIP growth to stay in negative territory in October as well and pick up November onwards.
“IIP has been very volatile and the small momentum of couple of months fizzles out soon. The Indian economy faces a structural growth slowdown originating from declining household savings and low agricultural growth. This is feeding into low agricultural and non-agricultural wage growth in rural areas which is impacting rural demand adversely. (We) believe monetary authorities will continue to follow accommodative monetary policy and expect further rate cuts in December 2019,” said Devendra Kumar Pant, chief economist, India Ratings & Research.
Industrial growth is expected to get some support by pickup in passenger vehicle sales, which grew 0.28 per cent in October. Manufacture of motor vehicles, trailer and semi-trailers has 4.86 per cent weight in IIP and manufacture of other transport equipment has 1.78 per cent weight. “In July-September FY20, these have contracted by 20.3 per cent and 8.9 per cent, respectively. However, it will be too early to term October 2019 automobile sale as general turnaround,” Pant said.
“The outlook for the IIP for October 2019 is disappointing with a worsening in the pace of contraction of auto production and electricity generation, and only a mild improvement in the pace of YoY decline in the output of Coal India Limited. The sharp contraction in electricity generation in October 2019 is likely to have been led by multiple factors, including weaker demand from industry following curtailed production schedules in some sectors, as well as lower domestic demand and farm offtake related to higher than normal rainfall.
In our view, the marginal YoY improvement in auto sales in October 2019 (after several months of contraction), was driven by deep discounting during the festive season, and its sustainability remains to be seen,” said Aditi Nayar, Principal Economist, ICRA. In terms of industries, 17 of 23 industry groups in the manufacturing sector have shown negative growth during September 2019 as compared to the same period last year.
The industry group “manufacture of motor vehicles, trailers and semi-trailers” recorded the highest negative growth of (-) 24.8 per cent followed by (-) 23.6 per cent in furniture and (-) 22.0 per cent in fabricated metal products, except machinery and equipment. Manufacturing of wood and products of wood and cork, except furniture; articles of straw and plaiting materials have shown the highest positive growth of 15.5 per cent followed by 9.2 per cent in basic metals.