Industrial production shrank 1.9 per cent year-on-year in October owing to a fall in output in manufacturing, capital goods and mining. This was a fall from a high base of 9.9 per cent growth in October last year.
The Index of Industrial Production (IIP) — representing the general level of industrial activity in the economy — had grown by 0.7 per cent in September after contracting for two consecutive months of July (-2.5%) and August (-0.7%).
Industrial output is widely expected to be further impacted with production seen hurt by the effect of withdrawal of high-value currency notes, announced on November 8. At a recent pre-budget meeting with Finance Minister Arun Jaitley, industry had flagged an almost 30 per cent fall in demand across sectors since the demonetisation move.
A widespread cash shortage following the withdrawal of the old Rs.1,000 and Rs.500 currency notes has slowed economic activity. The Reserve Bank of India on December 7 cut its gross value-added growth forecast for the current fiscal year by 50 basis points to 7.1 per cent.
High base
In October 2015, the IIP had shown a 9.9 per cent growth due to the manufacturing sector recording a 10.6 per cent growth and capital goods registering a growth of 16.5 per cent. In October this year, the manufacturing sector, accounting for more than 75 per cent of the IIP, shrank by 2.4 per cent, while capital goods also fell 25.9 per cent.
The IIP for April-October fell by 0.3 per cent against a 4.8 per cent growth a year ago, according to data released by the Central Statistics Office (CSO) on Friday.
Richa Gupta, Senior Economist, Deloitte India, said: “While some amount of decline can be attributed to a strong base effect, the broad story of subdued investments remains as capital goods have now contracted for a year in a row.
Electricity growth has also possibly fallen on the back of overall lack of demand and financial issues with the discoms,” Ms. Gupta added.
In terms of industries, 12 out of the 22 industry groups in the manufacturing sector showed negative growth in October. ‘Electrical machinery & apparatus’ recorded the highest negative growth of (-) 58.3 per cent followed by (-) 29.5 per cent in ‘Office, accounting and computing machinery’. On the other hand, ‘Coke, refined petroleum products & nuclear fuel’ has shown the highest positive growth of 18.4 per cent followed by 7.9 per cent in ‘Motor vehicles, trailers & semi-trailers’.
Growth in electricity generation slowed to 1.1 per cent in October as against 5.3 per cent in October last year. The mining sector shrank 3.1 per cent in October as against a growth of 3.5 per cent in the same month last year. Consumer goods output fell 1.6 per cent in October compared to 18.3 per cent growth a year ago. Consumer durables grew by only 0.2 per cent in October as against 41.9 per cent in the same month a year ago, while consumer non-durable goods contracted by 3 per cent (versus a 4.8 per cent growth last year).
“The outlook on the industrial sector doesn’t look positive as the impact of demonetisation will play out in the next 3-6 months with reports of car companies cutting production and a general lack of demand for durables,” Ms. Gupta said. “This would also mean that any recovery in the investment cycle will now be delayed.”
