Industrial Production Witnessed Steepest Decline of Last 8 Years

In signs of continuing weakness in the economy, India’s factory output shrank to the lowest level in eight years as all three broad-based sectors of capital goods production, consumer durables, and infrastructure and construction goods contracted.

The Index of Industrial Production (IIP) fell 4.3 per cent in September as compared to a contraction by 1.4 per cent in August 2019 and a growth of 4.6 per cent in factory output in the same month a year back, data released by the Ministry of Statistics showed on Monday.

The second straight month of contraction has taken the IIP to its lowest level since it shrank by 5 per cent in October 2011. On a quarterly basis, the second quarter of 2019-20 fiscal (July-September) saw IIP contracting by 0.4 per cent (Q1 3 per cent expansion and 5.3 per cent growth in Q2 FY19).

In September 2019, capital goods output dropped 20.7 per cent from a year ago, while consumer durables fell 9.9 per cent. Infrastructure and construction goods output fell 6.4 per cent. Intermediate goods was the only use-based classification that grew 7 per cent in September.

The contraction in IIP in September has dampened prospects of a quick recovery in economic growth after it slipped to a six-year low of 5 per cent in the April-June quarter this year.

Gross Domestic Product (GDP) data for July-September is due on November 29.

“IIP has been very volatile and the small momentum of a couple of months fizzles out soon,” said Devendra Kumar Pant, Chief Economist at India Ratings & Research. “The Indian economy is presently facing a structural growth slowdown originating from declining household savings rate, and low agricultural growth.”

Low agricultural growth is feeding into low agricultural and non-agricultural wage growth in rural areas, which is impacting rural demand adversely, he said, hoping of a cut in the interest rate in December.

During April to September, the IIP growth remained almost flat at 1.3 per cent compared to 5.2 per cent in same period last fiscal.

A slowdown was witnessed in the manufacturing sector, which declined by 3.9 per cent in September as compared to 4.8  per cent growth a year ago.

The power generation sector output dipped 2.6 per cent in September, compared to 8.2 per cent rise a year ago.

Mining output too fell by 8.5 per cent in September as against 0.1 per cent climb in the corresponding month last fiscal. Capital goods production, which is a barometer of investment, declined by 20.7 per cent in September compared to a 6.9 per cent hike in the year-ago month.

As per use-based classification, the growth rates in September 2019 over September 2018 are (-) 5.1 per cent in primary goods, 7 per cent in intermediate goods and (-) 6.4 per cent in infrastructure/ construction goods.

Consumer durables and consumer non-durables have recorded growth of (-) 9.9 per cent and (-) 0.4 per cent, respectively. In terms of industries, 17 out of 23 industry groups in the manufacturing sector have shown negative growth during September 2019 as compared to the same month last year.

The industry group ‘manufacture of motor vehicles, trailers and semi-trailers’ has shown 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.

On the other hand, manufacturing of wood and products of wood & 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.