Published: Tue, November 12, 2019
Markets | By Otis Pena

Industrial output posts steepest contraction in almost eight years

Industrial output posts steepest contraction in almost eight years

Industrial output contracted 4.3 per cent in September on a year-on-year basis, the lowest in seven years, with manufacturing shrinking 3.9 per cent, leading to calls for both a RBI rate cut and a fiscal stimulus.

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

As many as 17 of the 23 industry groups in the manufacturing sector contracted during September.

Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 for the month of September 2019 stands at 123.3, which is 4.3 per cent lower as compared to the level in the month of September 2018, said a government statement.

The number is keenly awaited after growth in the April-June quarter fell to a six-year low of 5 per cent, dragged down by weak consumption demand and investment levels.

The power generation sector output dipped 2.6 per cent in September, compared to 8.2 per cent growth in the year-ago period. At the same time, mining output slid by 8.5 per cent as against 0.1 per cent growth.

The output of consumer non-durables inched down by 0.4 per cent, whereas that of consumer durables fell by (-) 9.9 per cent. "Moreover, the contraction was widespread, covering all three sectors and five of the six use-based categories except intermediate goods", Nayar added.

The capital goods segment, that signifies investment, contracted 20 per cent in September after a 21 per cent fall in August.

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Seventeen out of the 23 industry groups in the manufacturing sector have shown negative growth during September 2019.

The Union cabinet cleared a proposal last week to set up a?25,000 crore debt fund to complete stalled housing projects, a move expected to boost cement and steel sectors in the months ahead.

She said the industrial performance in September stood out as the worst year-on-year performance in the current series.

The 5,2 per cent contraction in the core data for September, released on October 31, had suggested a steep drop in the IIP. "The Indian economy is presently facing a structural growth slowdown originating from declining household savings rate and low agricultural growth".

A slowdown was witnessed in the manufacturing sector, which declined by 3.9% in September as compared to 4.8% growth a year ago. IIP has been very volatile and the small momentum of couple of months fizzles out soon. Manufacturing of wood and products of wood and 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.

Brickwork Ratings Chief Economic Advisor M. Govinda Rao said: "The decline in the IIP for the month of September does not come as a surprise".

Despite elevated retail inflation, the slowing industrial growth raises hopes of another rate cut by the Reserve Bank of India (RBI) in the upcoming December policy meeting with economists expecting IIP growth to stay in negative territory in October as well and pick up November onwards.

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