Factory output shrinks for sixth month

Industrial production declined by 8% in August, mainly due to lower output of manufacturing, mining and power generation sectors, official data showed on Monday. File   | Photo Credit: K.K. Mustafah

India’s industrial output fell for the sixth month in a row this August, even as consumer price inflation surged past the 7% mark, hitting 7.34% in September, with food price spikes reaching 10.68% compared with 9.05% in August.

The index of industrial production (IIP) shrank 8% in August on a year-on-year basis, quick official estimates suggest, marking a marginally improvement compared with July when output contracted 10.8% as per revised estimates. Earlier quick estimates had pegged July’s contraction at 10.4%.

August’s output does mark the lowest contraction since factory production began falling in March. Output had shrunk 18.7% in March, followed by contractions of 57.3% in April and 33.4% in May. Between April and August, industrial output has now shrunk 25%.

Heightened inflation, driven by food inflation and transport costs, will make it difficult for the Reserve Bank of India to cut rates in its December policy review meeting, economists reckoned.

“CPI inflation came in higher at 7.4% against our forecast of 6.4%... This number will be in the range of 6%-7% in October too as vegetable prices continue to rise and will exert pressure,” said Madan Sabnavis, chief economist at CARE Ratings in a note titled ‘Double Jeopardy for the Economy.’

All segments of industrial production contracted in August, including food, pharma products and fast-moving consumer goods, which Mr. Sabnavis termed as a surprise.

“Quite clearly, the initial boost received (after the lockdown began to wind down) has [become] diluted post the unlock,” he noted, adding that basic metals, tobacco and transport equipment were the only manufacturing sectors that saw some growth.

Overall, the mining sector shrank 9.8% in August, manufacturing output declined 8.6%, while power sector output contracted 1.8%. Capital goods, primary goods and consumer durables all clocked negative growth rates over 10% — 15.4%, 11.1% and 10.3%, respectively.

‘Highest in 24 quarters’

Barring March 2020, retail inflation had been over the RBI’s tolerance band of 6% for 10 months and the overall inflation rate for the second quarter of FY21 is now the highest in 24 quarters at 6.95%, said Sunil Kumar Sinha, principal economist, India Ratings and Research.

“It appears that the supply disruptions-led inflation is slowly coming under control, as core inflation (5.67%) moderated in September 2020 over the previous month.

However, this is the fifth consecutive month of core inflation in excess of 5%,” Mr. Sinha said, though he was hopeful of some comfort on inflation in October.

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Printable version | Sep 18, 2021 2:17:40 PM |

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