Industrial production contracted 0.4% year-on-year in December 2016 due to a decline in capital and consumer items output as well as impact of demonetisation. According to the data released on Friday, manufacturing output shrank 2% while mining and electricity registered positive growth of 5.2% and 6.3% in December 2016. The data comes despite a low base in December 2015.
Negative growth
“We were expecting a negative growth (in December 2016) due to the demonetisation exercise. In January 2017, the IIP is expected to be in the negative growth territory or it may be marginally positive,” said Soumya Kanti Ghosh, chief economic adviser, State Bank of India. “Investor sentiment has been weak even before demonetisation and it continues to be weak,” he said.
In December 2015, the Index of Industrial Production (IIP) with base 2004-05 had contracted 0.91%. The overall industrial output performance in December 2016 was much lower than the 5.71% growth seen in November 2016, the fastest pace in 13 months, largely on account of a low base effect.
While basic goods output registered a growth of 5.3% in December 2016, capital and intermediate goods production shrunk 3% and 1.2% respectively. Consumer durables and non-durables output contracted 10.3% and 5% respectively.
There has been a yo-yoing of IIP growth numbers on a monthly basis this fiscal with a 1.8% contraction in October 2016, 0.67% growth in September preceded by two months of contraction in July and August, two months of growth in May and June and a contraction of 1.35% in April. In the April-December 2016 period this fiscal, IIP rose marginally by 0.3% against a 3.2% increase in the year-earlier period.
In terms of industries, 17 out of the 22 industry groups in the manufacturing sector had registered negative growth in December 2016. The industry group ‘Office, accounting and computing machinery’registered the highest negative growth of 23.9% followed by (-) 22.9% in ‘Other transport equipment’ and (-) 14.4% in ‘Luggage, handbags, saddlery, harness and footwear; tanning and dressing of leather products’. ‘Basic metals’ had shown the highest positive growth of 11.1% followed by 9.8% in ‘Radio, TV and communication equipment and apparatus’ and 3% in ‘Coke, refined petroleum products and nuclear fuel’.
Capital goods decline
“Capital goods have been declining throughout the year reflecting fall in capital formation. Low capacity utilisation has already pushed down demand for fresh investment. Fall in consumer goods growth will further depress conditions,” according to CARE Ratings.
“.. we expect growth for the year to be marginally positive between 1-2% compared with our earlier call of 3-4%. We believe that it would take at least a quarter to move back to normal,” it said.
