Capital, consumer goods output under pressure as demand, investments slow

Segments are yet to recover from pre-covid period of 2019-20 when the economy started slowing down

Capital goods, consumer durables and nondurables bore the brunt of contraction in the index of industrial production (IIP) as output declined year-on-year and compared to the pre-covid period of 2019-20, signifying low demand and investments in the economy.

Overall manufacturing fell 5.6 per cent in October on a yearly basis, but it was up almost two per cent over October 2019-20. So, it is these three segments that are yet to recover from 2019-20 when the economy started slowing down.

Capital goods production declined 2.3 per cent in October year-on-year and almost one per cent compared to the same month of 2019-20. However, this is a volatile segment and one big order may show a bump in a particular month and subdued numbers later.

In fact, new projects in CMIE data also showed a decline to Rs 3.54 trillion in the June-September quarter compared to Rs 4.90 trillion in the April-June quarter.

Consumer durables not only declined 15.3 per cent in October year-on-year but also 3.2 per cent over October FY20. Even as this segment rose 6.6 per cent in the first seven months of 2022-23 on a yearly basis, it was down 4.8 per cent over the corresponding period of 2019-20.

This was despite the fact that manufacture of motor vehicles, trailers and semi-trailers production rose 12.3 per cent in October year on year and 19.24 per cent over the same month in 2019-20.

ICRA chief economist Aditi Nayar partly attributed subdued output in capital goods and consumer durables to muted exports over this period. "The output of key export oriented sectors like leather, apparels and textiles all trailed pre-covid levels in October, 2022-23," she said.

Overall merchandise exports declined almost 17 per cent in October at around $30 billion year-on-year.

Production of consumer non-durables fell 13.4 per cent in October on a yearly basis and 6.5 per cent over October, 2019-20. This segment contracted 4.2 per cent in the first seven months of FY'23 year-on-year, and 3.6 per cent over the corresponding period of 2019-20.

Madan Sabnavis, chief economist at Bank of Baroda, said the fall in capital goods and consumer goods production is symptomatic of a deeper problem of absence of momentum in consumption and investment.

"This was a problem even before the pandemic and has not been corrected. Consumer goods production has been under pressure due to absence of demand to begin with, compounded by increase in prices which has deterred consumption at a time when incomes and jobs are not increasing at a rapid pace," he said.

Private investment is still down in a large number of sectors barring infra oriented, Sabnavis added.

Buoyancy when seen in capital goods and consumer goods have been restricted to the auto sector (where trucks/tractors get classified under capital goods) and cars, two wheelers for consumer goods and electronic items like phones/laptops, he said.