IIP contracts 4.2% in October, lowest in three years

Fall mainly due to a sharp drop in manufacturing sector which registered a decline of 7.6% over (-) 1.3% last year in October

Negating Prime Minister Narendra Modi's 'Make In India' campaign, industrial output in the month of October contracted by 4.2%, lowest in three years, compared to (-) 1.2% in the same month last year. This was mainly due to a sharp drop in manufacturing sector which registered a decline of 7.6% over (-) 1.3% last year in October.

In October 2011 industrial output fell by 5%.

The fall in manufacturing in October, which has a weightage of 75.52% in the index of industrial production (IIP), was the lowest in five years seven months. In February 2009, the manufacturing sector registered a massive fall of 9.1%.

"This has happened due to complete absence of consumption, both in rural and urban markets. As a result, production of consumer durables is severely low. There is no appetite for spending due to high inflation. I do not see any scope of revival in the months to come. This is typically a demand side problem with supply issues as well. Although the government is taking measures to smoothen business, remove red-tapeism, the real problem lies in addressing fundamental problems, which will take a long time," said Madan Sabnavis, chief economist, CARE Ratings.

Sabnavis said the fall in industrial production in October, which is otherwise a festive season and should translate into more demand, can be linked with rise in gold imports that rose by a massive 280% in the same month. This meant, he said, people probably invested more in gold than buying consumer durables.

Cumulative industrial production during April-October stood at 1.9% compared to 0.2% in the corresponding period of last fiscal, according to the data released today by ministry of statistics and programme implementation.

In the three main segments of the industrial production, mining sector registered a growth of 5.2% compared to a fall of 2.9% in the same month last year.

Similarly, electricity generation in October also rose 13.3% as against 1.3% in October last fiscal.

According Aditi Nayar, economist, ICRA, the October numbers should be viewed with alarm as the economic indicators for November seems healthy.

"Some indicators suggest an uptick in manufacturing output in November 2014. For instance, after contracting by 5% in October 2014, automobile production expanded by 12% in November 2014. In our view, average growth for October-November 2014 would provide a clearer picture of the evolving trends in factory output in the third quarter of FY15 ? Given the fewer number of working days on account of the shift in the festive calendar, the sharp contraction in manufacturing output in October 2014 should not be construed as a cause for alarm," Nayar added.

In October growth of the eight core infrastructure sectors had registered a healthy growth of 6.3% raising hopes of a better industrial production.