New Delhi: Industrial output falls to seven-year low

New Delhi: Sings of slowdown became more pronounced as the government data on Friday revealed factory output shrank by 1.1 percent in August, recording the poorest performance in seven years due to a sharp decline in production of capital goods and consumer durable.

Industrial production growth for the first time in more than two years has treaded into negative territory.

The Index of Industrial Production (IIP) had shown a growth of 4.8 percent in August 2018. The previous low in IIP was (-) 1.7 percent in November 2012. The manufacturing sector, which contributes over 77 percent to the IIP, contracted by 1.2 percent, the lowest in five years, as against a growth of 5.2 percent in the year-ago month, according to the data released by the National Statistical Office (NSO).

The previous low in the manufacturing segment was recorded at (-) 1.8 percent in October 2014. The data revealed that electricity generation growth too was in negative at (-) 0.9 percent as against an expansion of 7.6 percent in the year-ago month while the mining sector growth was flat at 0.1 percent.

Earlier this month, the RBI revised downwards its GDP growth forecast for the current fiscal to 6.1 percent from the previous estimate of 6.9 percent after the first-quarter economic growth slipped to over six-year low of 5 percent.

Providing further details of the IIP, the NSO data showed the worst performance came from the capital goods segment as its output shrank by over 21 percent as against an expansion of 10.3 percent in August last year.

Consumer durables output too declined by 9.1 percent in August 2019 as against 5.5 percent growth in the same month of 2018. Another poor performing segment was infrastructure/ construction goods. It showed a decline of 4.5 percent in August 2019 as against a growth of 8 percent in the corresponding month of last year.

'Intermediate goods' sector, however, showed a healthy growth of 7 percent, up from 2.9 percent in the year-ago month. Consumer non-durables segment posted an expansion of 4.1 percent in August.

This compares with 6.5 percent expansion in August 2018. In terms of industries, 15 out of the 23 industry groups in the manufacturing sector have shown negative growth during August 2019 as compared to the corresponding month of the previous year.

Commenting on the IIP numbers, K Joseph Thomas, Head Research, Emkay Wealth Management said the data amply reflects the underlying weakness in manufacturing and industrial activity which needs to be addressed without much loss of time for economic recovery. Aditi Nayar, Vice President, Principal Economist there is a growing likelihood that the GDP growth may not meaningfully accelerate in the second quarter of the current fiscal from the multi-quarter low 5 percent recorded in April-June quarter, despite a favourable base effect. The extent of pickup in consumption in the festive months and crop production in the rabi season will signal whether a material turnaround in demand and economic growth are in the offing, she said.

Moody's Investors Service on Thursday slashed its 2019-20 GDP growth forecast for India to 5.8 percent from 6.2 percent earlier, saying the economy was experiencing a pronounced slowdown.

Meanwhile, the NSO revised upwards the IIP growth for July to 4.6 percent from the earlier estimate of 4.3 percent. (PTI)