Industrial output contracts in August for the first time in nearly two years

Mining output recorded a contraction of 4.3 per cent in August as against a growth of 3.8 per cent in July and 12.3 per cent in the year-ago period, reflecting the impact of heavy rainfall in August on mining activities. Electricity output also posted a contraction of 3.7 per cent in August compared with 7.9 per cent in July and 15.3 per cent in the year-ago period.

“The slowdown was on account of an unfavourable base. Among the major sectors, mining and electricity sectors witnessed a contraction. Heavy rainfall in the month of August may have had a bearing on the mining sector slowdown,” Rajani Sinha Chief Economist CareEdge Ratings said.

Manufacturing, which accounts for 77.6 per cent of the weight of the IIP, also slipped to a 22-month low of 1.0 per cent in August, mainly due to high base effect. Manufacturing output had grown 4.4 per cent in July and 10.0 per cent growth in August 2023.

On the basis of use-base classification, the primary goods segment slipped into the negative territory after a gap of nearly 3.5 years, contracting by 2.6 per cent in August mainly due to base effect. It had grown 5.9 per cent in the previous month and 12.4 per cent in the year-ago period.

Capital goods segment, a key indicator of the investment sentiment, grew 0.7 per cent in August as against 11.8 per cent growth in July and 13.1 per cent in the year-ago period.

On the consumption goods side, there was a mixed picture. Consumer durables output — an indicator of consumption demand — grew 5.2 per cent in August as against 8.3 per cent growth in the previous month and 6.0 per cent in the year-ago period. However, consumer non-durable goods output, which reflects fast-moving consumer goods, continued to be in negative territory for the third straight month at (-) 4.5 per cent in August as against (-)4.3 per cent in July and 9.9 per cent growth in the year-ago period.

“A sustained decline in consumer non-durables indicates that the stress in rural demand hasn’t bottomed out yet. However, the steady growth in consumer durables is a positive for consumption demand in the economy. Consumer durable goods recorded the highest growth among the use-based segments at 5.2% YoY in August 2024,” Pras Jasrai, Senior Economic Analyst, India Ratings and Research said.

Sectorally, as per the IIP data, 11 out of the 23 sectors in manufacturing registered contraction in August, with other manufacturing (-8.2 per cent), printing and reproduction of recorded media (-7.1 per cent), manufacture of fabricated metal products, except machinery and equipment (-6.5 per cent), manufacture of pharmaceuticals, medicinal chemical and botanical products (-6.1 per cent) were among the significant non-performers. Manufacturing of electrical equipment (17.7 per cent), wearing apparel (14.0 per cent) and furniture (13.9 per cent) were among the highest growing sectors.

However, experts cautioned that the sectors of wearing apparel and furniture gained mainly on base effect. “Industries like computers and electronics, readymade garments and furniture had witnessed sharp declines last year and hence were buoyed by this statistical effect. Export market has also been weak which is getting reflected in the pharma segment…the readymade goods segment would have benefited to a limited extent from exports which got an impetus due to the problems in Bangladesh. We may expect growth rates to be better from September onwards with a peak being achieved by October end which would be the post-harvest and festival season when spending typically increases,” Madan Sabnavis, Chief Economist, Bank of Baroda said.