Industrial output contracts 1.8%

Despite festive season, poor manufacturing and mining numbers drag October IIP to 4-month low

Industrial output contracted in October after three months of growth,  showed official data issued on Thursday.

The Index of Industrial Production (IIP) declined 1.8 per cent in October, a four-month low,  despite it being a festival month, compared to two per cent growth in September.

Part of the decline  could be  attributed to  a 15-month high growth rate of 8.4 per cent in factory production in the same month last year. Apart from this high base effect, experts cited various reasons for the decline but also said it was expected. “Only the export-extensive sectors such as textiles are doing well and all the other segments were a disappointment,” said Soumya Kanti Ghosh, chief economic advisor at State Bank of India. Exports grew in double digits for four months till October.

Industrial production has been stagnant through the current financial year (starting April 1) till October, against 1.2 per cent expansion in the corresponding period a year before.  

With retail inflation surging to a record high in November, the Reserve Bank of India is expected to tighten its monetary stance further. However, already high interest rates have taken a toll  on manufacturing. The sector comprises 75 per cent of the total index and saw a decline in production by two per cent in October against a high 9.9 per cent growth a year before. Besides, mining shrank in October, while electricity showed sluggish expansion. Mining contracted 3.5 per cent against a 0.2 per cent growth in October 2012.  Electricity generation rose 1.3 per cent against a 5.5 per cent growth earlier.

Within manufacturing, the consumer durables segments, declining through the first half of the financial year, contracted for a ninth consecutive month in October. Output here had fallen 12 per cent, against a rise of 16.7 per cent a year before, as high inflation hit the citizenry’s income.

“This is a worrying trend, as this shows that consumer sentiment is still weak and inflation is one of the factors,” said Ghosh. The consumer goods segment contracted by 5.1 per cent against 13.8 per cent growth in October last year. The production of non-durables was also fragile, growing 1.8 per cent due to a high base effect of 11.2 per cent growth in the same month last year.

Some economists said sector-related issues were the reason behind the poor industrial performance. “Weak core sector performance, coupled with sector-specific issues for sugar and gems & jewellery, offset any pick-up in consumption related to the kharif harvest and festive season, as well as healthy exports’ growth,” said Aditi Nayar, senior economist at Icra, the ratings agency.

Sugar machinery went down by almost 33 per cent in October and gems and jewellery output declined 39 per cent in this month. “This reflects the tight availability of gold in the market, following restrictions on import,” said Nayar.

Capital and intermediate goods also grew at a snail’s pace. While the former rose 2.3 per cent, the latter expanded 1.8 per cent in October.

Experts said industries would grow but the expansion would not be huge, which means economic recovery might not be substantial in the second half. Economic growth was below five per cent for a fourth consecutive quarter in July-September. The government hopes the economy would grow by 5-5.5 per cent in 2013-14. It had expanded 4.6 per cent in the first half.