Industrial output contracts 1.1% in August; manufacturing shrinks

Image for representation

This was the first contraction in the sector in the past six months.

This is the first instance of a contraction in the index of industrial production in over two years.

The manufacturing sector, which contributes over 77 per cent to the IIP, registered a decline of 1.2 per cent in output during August 2019 as against a growth of 5.2 per cent in the same month of a year ago.

"The Indian economy is presently facing a structural growth slowdown originating from declining household savings rate, and low food inflation and agricultural growth".

The manufacturing sector, which contributes over 77 percent to the IIP, showed a decline of 1.2 percent in output during August 2019 as against a growth of 5.2 percent in the same month of past year, PTI reported. The previous low in IIP was -1.7 per cent, in November 2012. A slide in the output of infrastructure goods and consumer durables offers pointers to the underlying weak demand conditions.

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As per the data, electricity generation declined by 0.9 per cent as against an expansion of 7.6 per cent in the year-ago month. The cumulative growth for the period April-August 2019 over the corresponding period of the previous year stands at 2.4 per cent, down from 5.3 per cent in the corresponding period of the last fiscal. Fifteen out of the 23 industry groups in the manufacturing sector showed a decline in output in August as compared to the same month previous year, the government said.

As per the data, the output rate of the manufacturing sector fell (-) 1.2 per cent in August from a year-on-year (YoY) rise of 5.2 per cent. They also said the dismal factory data may prompt the RBI to go for another interest rate cut when it reviews monetary policy in December. Moody's Investors Service on Thursday projected a low 5.8% growth for India in FY'20 - the lowest growth estimate issued so far by any agency for the current fiscal. Consumer durables also saw a massive 9.1% drop in production, while production of Consumer non-durables grew by 4.1%.

To combat the slowdown, Finance Minister Nirmala Sitharaman announced a cut in corporate tax rates in September, bringing it down to 22 percent from 30 percent for existing companies, and to 15 percent from 25 percent for new manufacturing companies. The highest contraction was seen in motor vehicles, trailers and semi-trailers (-23.1%), transport equipment (-13.6%), paper (-12.6%), textiles (-7.6%) among others. Going forward, the IIP is likely to show erratic low growth trend.

Economists said they expect the sector to witness a rebound on the back of revival in the rural economy and an upswing in demand due to the measures unveiled by the government.

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