IIP growth dips to eight-month low of 3.2% in Oct as manufacturing drags

Growth in industrial production came down to an eight-month low of 3.2 per cent in October, with capital goods and automobiles applying brakes in the biggest segment -- manufacturing -- despite it being a festival month.

The rate was 3.3 per cent in the previous month.

The base normalising after output rose following relaxations in Covid-induced lockdown last year also came in the way of growth in the index of industrial production (IIP). The index had risen 4.5 per cent in October last year against 1 per cent in the previous month.

However, comparing output growth is tricky because the rate was revised from 3.1 per cent to 3.3 per cent in September. If one compares provisional estimates to provisional estimates, IIP growth would be marginally higher in October than in September.

The data does not give hopes of any broad-based recovery after the economy grew 8.4 per cent in the second quarter this fiscal year even as industrial production was up by a hefty 7.8 per cent in October over the corresponding month of the pre-Covid year of 2019.

Industrial production grew 20 per cent in the first seven months of FY22 against a 17.3 per cent contraction in the corresponding months of the previous year. Growth represented a hefty expansion seen in the first quarter owing to the low base of the previous year.

November may see even further subdued activities as displayed by e-way bills generated. Their generation fell to 61.15 million in November from 74.5 million in October. This may mean slow growth in industrial activities in the first two months of the third quarter of FY22, and this may drag down GDP growth in the third quarter.

The Reserve Bank of India’s monetary policy committee (MPC) has revised downward GDP growth to 6.6 per cent in the quarter compared to its earlier calculation of 6.8 per cent.

It should, however, be noted that it is value added in industrial sales that is taken in GDP and not physical volumes of factory production as depicted by the IIP.

It was mainly mining that revived after disruption caused by late rain in September and electricity generation that pushed up industrial growth, while manufacturing pulled it down in October. (See chart.)

Within manufacturing, motor vehicles, trailers, and semi-trailers continued to show a decline in production. The segment contracted 12.6 per cent in October, higher than the 9 per cent fall in the previous month. The manufacturing of other transport equipment declined 15.6 per cent in October, albeit lower than the 18.5 per cent in September.

“Industrial growth printed at stable yet tepid numbers in October, with the festive season boost being negated by supply-side issues and a higher base,” ICRA Chief Economist Aditi Nayar said.

Capital and consumer goods, especially durables ones, did not present any optimistic picture for the industrial sector.

While capital goods output declined 1.1 per cent in October from 2.4 per cent growth in September, consumer durables continued to contract at a higher rate of 6.1 per cent from 1.9 per cent over this period. Fast-moving consumer goods also did not portray any rosy picture with output rising by just 0.5 per cent in October from 0.2 per cent in the previous month.

“The disaggregated data does not provide convincing signals of the recovery becoming durable and broad-basing,” Nayar said.

A contraction in capital goods may come in the way of further activities in factory production.

India Ratings Chief Economist Devendra Pant said weak consumption and investment trends implied that the government had to do the heavy lifting to take the economy out of sluggish growth.

Barclays India Chief Economist Rahul Bajoria pinned hope on higher government spending, especially capital expenditure.