Industrial output shrinks in October despite festive eason

Both manufacturing, mining decline, electricity generation rises insignificantly

Amid hope of economic recovery in the second half of the current financial year, the industrial output contracted in October after three months of growth, official data showed today.

The Index of Industrial Production (IIP) declined 1.8% in October-- a four-month low-- despite it being a festival month against 2% growth in the previous month.

Part of decline could be attributed to a 15- month high growth of 8.4% in factory production in the same month last year.

Apart from this high base effect, experts cited various reasons for decline in IIP, but said it was all expected. "This was on the expected lines. Only the export extensive sectors such as textiles are doing well and all the other segments were disappointment", said Soumya Kanti Ghosh, chief economic advisor at the State Bank of India. Exports grew in double digits for consecutive four months till October.

The industrial production has been stagnant throughout the current financial year till October against 1.2% expansion in the same period a year back. With retail inflation surging to a record high in November, the RBI is expected to tighten monetary stance further. However, high interest rates took a toll on manufacturing.

Manufacturing, which comprises 75% of the total index, saw a decline in the production by 2% against a high 9.9% growth a year ago. Besides, mining shrank in October even as electricity showed sluggish expansion. Mining contracted 3.5% against 0.2% growth in October 2012. Electricity generation rose 1.3% against 5.5% growth.

Within manufacturing, the consumer durable segments, which had been declining throughout the first half of the year, contract for the ninth consecutive month in October. The consumer durable goods output went down by 12% in October against a rise of 16.7% a year ago as high inflation takes away major part of the common man's income.

"This is a worrying trend as this shows that the consumer sentiment is still weak and inflation is also one of the factors behind it", said Ghosh.

The consumer goods segment contracted by 5.1% against a staggering 13.8% growth in October last year. The production of non-durable goods was also fragile as it grew 1.8% in October due to high base effect of 11.2% growth in the same month last year.

Some economists said that sector related issues were the reason behind the poor industrial performance "Weak core sector performance coupled with sector specific issues for sugar and gems and jewelry offset any pickup in consumption related to the kharif harvest and festive season as well as healthy exports growth", said Aditi Nayar , Senior Economist at ICRA.

Sugar machinery went down by almost 33% in October and gems and jewellery output declined drastically by 39% in this month. "This reflects the tight availability of gold in the market following restrictions on imports" said Aditi Nayar , Senior Economist at ICRA.", said Nayar.

Even the capital and intermediate goods grew at a snail's pace this month. While capital goods rose 2.3%, the intermediate goods expanded 1.8% in October this year.

Experts said that going ahead industries would grow but the expansion would not be huge, which means economic recovery may not be substantial in the second half. Economic growth stood at sub-5% for the fourth consecutive quarter in Q2 of 2013-14. The government hopes that the economy would grow 5-5.5% in 2013-14. It had expanded 4.6% in the first half.