Industrial output growth slips into negative zone

IIP fell 0.8% as manufacturing contracted 3.1 % in April

Growth of industrial output fell 0.8 per cent in April 2016, pulled down by the manufacturing sector, which contracted 3.1 per cent from the same month in 2015.

The April numbers are a break in the rising trend of February and March. In March, the Index of Industrial Production (IIP) rose 0.1 per cent over the same month of 2015. Industrial output grew 2.4 per cent in 2015-16, slower than the 2.8 per cent in 2014-15.

Contraction in manufacturing, which constitutes roughly three-fourths of the index, led the IIP towards a fall even as electricity generation increased 14.6 per cent and mining output climbed 1.4 per cent, government data showed on Friday.

The capital goods sector, which had declined for five consecutive months till March, contracted 24.9 per cent in April, confirming a bleak investment outlook. This contraction has consistently acted as a drag on the IIP. In 2015-16, capital goods output contracted 3 per cent against a rise of 6.3 per cent in 2014-15.

In April, 14 of the 22 industry groups within manufacturing posted growth, up from 12 in March. Among product categories, office, accounting and computing machinery gave way to furniture, which registered the highest growth at 28 per cent. Electrical machinery and apparatus continued to fall by the largest margin at 55.9 per cent.

Cable, rubber insulated continued to contribute the most to the contraction in the index. Sugar and cotton seed oil came in next. Electricity, gems and jewellery, and telephone instruments, including mobile phones, were the highest positive contributors to growth. Of this, electricity and gems and jewellery have figured on the list for the last few months.

On the demand side, some relief was seen in the consumer durables sector, which maintained its uptrend at 11.8 per cent. Growth in the sector remained in the positive zone for the eleventh month straight. In 2015-16, consumer durables grew 11.2 per cent, the only sector that clocked double digit growth.

Consumer non-durables, on the other hand, continued to decline for the sixth straight month, going down by 9.7 per cent from 4.4 per cent in the previous month.

The combined output of eight core infrastructure sectors, which carry a weight of nearly 38 per cent in the IIP, jumped to 8.5 per cent in April due to a sharp pick-up in fertiliser and cement production and a commensurate rise in electricity generation. This had been expected to give a push to the IIP. Also, the gross domestic product (GDP) grew 7.6 per cent in 2015-16, up from 7.2 per cent in the previous year. The government expects GDP growth to be in the range of 7-7.75 per cent in 2016-17.

CARE Ratings said the industrial production in FY17 is expected to pick up in coming months on the back of improved infrastructure spending by the government and improvement in the consumer goods segment.

"The growth in consumer goods segment is slated to strengthen in the second half of the year with expectations of increased Urban and Rural demand… The increase in consumption demand in turn could help the capital goods segment. Higher infrastructure spending by the government too will have appositive bearing, albeit a gradual one, on the overall growth of capital goods," it added.