Factory output growth slipped to a 17-month low of 0.5 per cent in November, primarily due to a high base effect along with a moderation in growth in capital goods, consumer durables and a contraction in manufacturing growth, data released by Central Statistics Office (CSO) on Friday showed. The previous low was in June 2017, when factory output growth had contracted by 0.3 per cent, a month ahead of the rollout of the goods and services tax (GST) regime. The growth in industrial production in October was revised upwards to 8.4 per cent from 8.1 per cent, the data showed. In absolute terms, the Index of Industrial Production (IIP) stood at 126.4 in November 2018 as against 125.8 in November 2017 and 132.8 in October 2018.
Manufacturing growth slipped into negative territory at (-)0.4 per cent in November from 10.4 per cent in the year-ago period and 8.2 in the previous month. Manufacturing accounts for 77.63 per cent of the total weight in the Index of Industrial Production.
Capital goods output, which is a proxy for investment demand, also posted a contraction at 3.4 per cent in November from 17.0 per cent in October and 5.7 per cent in the year-ago period. Consumer durables output also clocked a negative growth at (-)0.9 per cent as against 18.0 per cent in October and 3.1 per cent growth in November 2017. Cumulatively for April-November, the first eight months of this financial year, the IIP grew at 5.0 per cent, higher than 3.2 per cent a year ago.
Economists said though the IIP growth was expected to slow down due to post-festive season winding down of momentum, the moderation has been sharper and indicates a slowdown in growth in the second half of the financial year, as has also been suggested by the advance estimates of GDP released on Monday.
CSO’s advance estimates have estimated a 7.2 per cent GDP growth for the full year, according to which the GDP growth will work out to be 6.8 per cent for October-March, lower than 7.6 per cent in April-September.
“While the adverse base and the post festive winding down of momentum along with fewer working days was expected to lower the IIP growth, the magnitude of correction has been sharper. Tighter domestic financing conditions may also have played a part. Going forward, incrementally improving liquidity, normalisation post festive related disruptions and election related spending could get growth supportive enabling higher prints versus today’s IIP number. However H2 average growth will be lower than H1, as also corroborated by advance estimates of GDP,” Shubhada Rao, chief economist, Yes Bank said.
Sunil Kumar Sinha, principal economist, India Ratings said that the industrial growth is still not on sound footing due to high variability in industrial growth across sectors. “Despite IIP growth showing 5 per cent or higher growth in 8 out of past 12 months, India Ratings has consistently highlighted that industrial growth is still not on sound footing. The key reason for this view has been high variability in industrial growth across sectors and within sectors on month on month basis.”
In terms of industries, 10 out of 23 industry groups in the manufacturing sector showed positive growth during November 2018.
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