In pre-demonetisation month of October, IIP contracts 1.9%

The industrial output growth was driven down by a contraction in manufacturing and mining sectors

Industrial production fell 1.9% in October despite it being a festival month and demonetisation was  yet  to be announced, indicating that months of November and December may see sharper fall due to cash crunch in the economy. Two of three broad segments-- manufacturing and mining-- declined by 2.4% and 1.1% respectively, while electricity generation rose just 1.1%.

The contraction in the Index of Industrial Production (IIP) against the rise of 0.7% in September was due largely to decrease in consumer goods production and continued decline in capital goods for a year, that tells a sorry  tale of investment scenario in the economy. Capital goods production was down by a whopping 25.9%, while consumer durable goods were up just 0.2% in October against nine-month high of 13.9% in September.  

Factory output grew by a higher rate of 9.9% in October of the previous year and economists also attributed this factor and higher number of holidays this  time to a fall in IIP in October, 2016.

"An unfavourable base effect and a larger number of holidays weighed upon factory output in October 2016, countering the much-awaited festive upturn as well as the rise in growth of merchandise exports and the core sector industries," ICRA principal economist Aditi Nayar said.  

Merchandise exports grew by 9.6% in October for the second month in a row, a rarity these times.

For the month of November, when demonetisation is expected to pull down industrial production sharply, Madan Sabnavis expected the fall to be around 5%. He expected the same 5% contraction in IIP in December as well. 

That is what is puzzling in tax numbers as excise duty collections rose 43.5% in the first eight months (April-November) of 2016-17 to Rs 2.43 lakh crore against Budget Estimates of 12.15% rise in 2016-17 over that in the previous financial year.