Output falls for first time in 15 years

Tight liquidity in the domestic market and a relentlessly slackening global demand finally caught up with industrial growth in India as the IIP fell for the first time in 15 years in October.

Tight liquidity in the domestic market and a relentlessly slackening global demand finally caught up with industrial growth in India as the index of industrial production IIP fell for the first time in 15 years in October. The IIP fell 0.4 per cent in October compared with an exceptional growth of 12.2 per cent last October and 4.8 per cent last month. The October decline also brought down the cumulative growth for the April-October period to 4.1 per cent from 4.9 per cent for April-September.

Moody8217;s Economy.com, the economic intelligence unit of international credit rating agency Moody8217;s, attributed the decline in output to the Reserve Bank of India8217;s relentless monetary tightening regime till July, which resulted in moderation in domestic demand. It added, 8220;The aggressive monetary easing since October may not have led to an immediate rebound in domestic consumption.8221; Also commenting on the squeeze in global demand, it said, 8220;India8217;s Outbound shipments declined in October, but the worst is yet to be seen. Losing support from external orders, India will unlikely see a rebound in manufacturing output any time soon.8221;

The government, however, does not entirely blame the economic slowdown and the RBI8217;s hawkish policy for the moderation in output. Commenting on the reason for such a sharp downturn in industrial output suddenly, chief statistician of India Pronab Sen said it was primarily a base effect. 8220;Normally, due to seasonal factors, manufacturing always slows down in October, which, however, was not the case last year. Since IIP unexpectedly saw a good growth last October, this year output fell more than expected,8221; he told The Indian Express. 8220;If the normal cycle were to continue, we could see a sharp upturn in output next month.8221;

The worst hit, perhaps, was manufacturing, which registered a fall of 1.2 per cent as against a massive growth of 13.8 per cent last year. Individually, amongst the sectors, 10 sectors like textiles, food products, wood products, leather products, etc. out of a total of 17, also saw negative growth.

Another important segment that saw a decline in output was that of intermediate goods whose output fell 3.3 per cent over that in October last year. The biggest surprise, perhaps, was the segment for consumer goods as this has been the only sector performing consistently well throughout the year while others were inconsistent over the last one year or so. Production in consumer durables, which grew a healthy 13.1 per cent last month and 9.3 per cent in October last year, slipped 3 per cent this October whereas non-durables slipped 2 per cent as against a growth of 13.9 per cent last October.