Industrial output slides 0.5% in Jan

Contracts second month in a row.

India’s industrial output contracted for the second month in a row during January 2009, as demand in the economy continued to remain weak.

Data released by the Central Statistical Organisation (CSO) today showed that the Index of Industrial Production (IIP) contracted 0.5 per cent in January, a notch higher than the revised 0.6 per cent dip in December 2008.

The contraction in industrial production during the month under consideration was cushioned by double -digit growth in the production of capital goods, owing to a lower base in the same month of the previous year.

Economists expect better performance by the IIP in the February and March of the financial year, due to indications like higher cement output and better auto sales than the levels seen in the previous months.

“I think January was clearly better than the past three months. The supply side problem, including the supply of credit, has abated considerably in January,” said Abheek Barua, chief economist, HDFC Bank.

Of the three broad sectors covered by the IIP, only electricity posted marginal growth compared with a year earlier. In the April to January period of 2008-09, the IIP grew 3 per cent, against 8.7 per cent in the corresponding period of the previous year. Economists expect the IIP to post annual growth of 3-3.5 per cent in 2008-09.

A dip of 0.5 per cent in production in the manufacturing sector, which comprises about 80 per cent of the IIP, dragged down the index in the month under consideration. But 15.4 per cent growth in the capital goods segment, which covers industrial machinery, cushioned the fall.

STILL OFF-COLOUR (IIP Growth in January 2009)
Sector	Jan 08 (% growth)	Jan 09 (% growth)	Overall Apr-Jan 07-08 (% growth	Overall Apr-Jan 08-09 (% growth)
Mining	2.9	-0.4	4.9	2.7
Manufacturing	6.7	-0.8	9.3	3.0
Electricity	3.7	1.8	6.3	2.6
Overall	6.2	-0.5	8.7	3.0
Source: CSO

This segment had expanded at a much slower pace of 2.6 per cent in the corresponding month of 2008. Moreover, machinery production in factories increased 17.5 per cent in the month under consideration.