Industrial output contracts 1.5%, shrinks for a third straight month

Data prompts industry groups to make fresh calls for the Reserve Bank of India to cut interest rates

March 12, 2016 12:11 am | Updated September 06, 2016 11:42 am IST

Industrial output shrank for the third straight month, contracting by 1.5 per cent in January 2016. The data prompted industry groups to make fresh calls for the Reserve Bank of India (RBI) to cut interest rates at its monetary policy review slated for April 5.

The decline compared with the 2.8 per cent growth in industrial output in January 2015.

According to the data released by the Central Statistical Organisation (CSO) on Friday, the year-on-year growth was (-)1.5 per cent in January. The drop in output was due to various factors, including a huge contraction in the capital goods sector.

Manufacturing sector output contracted by (-) 2.8 per cent, capital goods shrunk by (-)20.4 per cent and consumer non-durables fell by (-) 3.1 per cent.

Ten out of 22 industry groups in the manufacturing sector registered negative growth. Electrical machinery and apparatus recorded the maximum negative growth of (-)50.3 per cent.

The 1.5 per cent fall in industrial output this January was against 2.8 per cent growth in January 2015 and (-)1.2 per cent in December 2015 (revised from -1.3 per cent earlier). Industrial output growth during April 2015-January 2016 was flat at 2.7 per cent.

“The growth in manufacturing sector remains fragile as evident from the fall in manufacturing index for the last three consecutive months,” said A. Didar Singh, Secretary General of the industry body FICCI. “The delay in the recovery of manufacturing is going to impact the overall economic growth. There is a need for addressing the issue of ease of doing business in a comprehensive manner that would pull the investments into manufacturing,” he said.

“The Budget has tried to address tax related issues for manufacturing and we are hopeful that they would yield results. But we would like to see further rate reduction in the forthcoming monetary policy (of the RBI) that can stimulate demand and investments in the economy to support manufacturing growth,” Mr.Singh said.

With the Budget sticking to the fiscal consolidation roadmap by targeting to limit the fiscal deficit at 3.5 per cent of GDP in 2016-17, the government had claimed that it had done its job well by maintaining fiscal discipline to ensure macro-economic stability. This in turn has provided some space for monetary policy to be loosened up, the government said.

Fiscal deficit for the current fiscal is projected at 3.9 per cent. Experts are expecting a minimum 25 basis points repo rate cut by the RBI, most probably earlier than April, to perk up growth.

However, the International Monetary Fund, after a consultation with the Indian government on the country's economic development and policies, said earlier this month that “given the upside risks to inflation and still high household inflation expectations ... the monetary policy stance should remain appropriately targeted at ensuring durable reduction in inflation toward the medium-term target.”

This has to be supported by clear policy communication, continued fiscal consolidation and measures to boost food supply, it had said. Monetary authorities are encouraged to stand ready to tighten the stance if warranted, the IMF said.

Global financial market volatility, a potential further deterioration in exports and strain in bank and corporate balance sheets could weigh on India's growth prospects, the IMF had said.In January 2016, growth in mining output was 1.2 per cent while that of electricity was 6.6 per cent, basic goods (1.8 per cent), intermediate goods (2.7 per cent) and consumer durables (5.8 per cent).

The factors being blamed for the fall in industrial output include the Chennai floods and poor revival of investment.

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