India's factory output falls to 2% in June as manufacturing slows

Industrial output slowed to a 3-month low of 2 per cent in June compared to May’s seven-month high of 4.5 per cent, as capital goods production contracted and overall manufacturing growth slipped.

The growth rate was in line with the economists’ expectations. The index of industrial production (IIP) had last contracted in March, and is expected to remain muted, owing to weak exports, rural distress, credit constraints and uncertainty over the election outcome, according to economists. Manufacturing output, which had risen by 4.5 per cent in May, took a hit in June, rising by only 1.2 per cent, showed data released on Friday.

The manufacturing segment constitutes the bulk of the IIP at 77.6 per cent. Policymakers continue to fear a deep negative growth emerging in the sector.

Manufacturing remains troubled

Of the 23 sub-sectors within manufacturing, 15 recorded a year-on-year contraction. The IIP database showed contraction in the automobile sector intensifying as production went down by 13 per cent in June, after a 6 per cent dip in May. Apparels, wood products and basic metals continued to see healthy growth in June while paper, furniture and fabricated metal products were the biggest losers.

Production of electronic goods continued to see good growth, rising by 10 per cent in June. This came after the government pushed manufacturing in the sector on a sustained basis over the past one year, through a series of benefits and the phased manufacturing programmes aimed at reducing imports of electronics goods. 
 

Uncertain Times
 

• Manufacturing production rose by 1.2% in June, lower than the 4.5%rise in May
• Electricity generation rose by 8.2% in June, up from the 7.4% rise in May
• Mining output grew by 1.2% in June, down from the 2.41% rise in May

The crucial capital goods segment, which connotes investments, saw contraction deepen at 6.5 per cent, after the 1.6 per cent contraction in the previous month. Production in the category had risen by only 1.2 per cent in the first month of the current financial year, after two months of contraction.

Driven by machinery and heavy transport, capital goods production had been on a solid upward swing till October. But since then, contraction has become the norm for every month, with the exception of two months.

Consumer goods struggle

Consumer durables also contracted, posting a decline of 5.5 per cent after rising by 0.22 per cent in May. Consumer goods production had been slowing for some time, reflective of inventories that have built up in the third quarter of 2018-19 when capacity utilisation also improved. But, with demand tapering off, production has slowed, economists had pointed out.

“On the face of sustained auto sector slowdown and agriculture distress, industrial sluggishness is unlikely to go away soon. All industrial and economic revival hopes hinges on the agriculture sector’s performance, which after July 2019 rainfall has raised some hopes,” said Devendra Kumar Pant, Chief Economist at India Ratings and Research.