Industry output shrinks for 3rd straight month

Rate-cut hopes ignited by weak industrial numbers coupled with moderating inflation

Dragged down by manufacturing, particularly of consumer durables, industrial production shrank by 0.6 per cent in December 2013 as against 1.3 per cent in November, the third straight month of contraction, official data showed on Wednesday.

The fact that factory production did not grow despite a low base of a 0.6 per cent fall in December 2012 presented a gloomy picture of the industrial scenario.

Manufacturing, which has a weight of over 75 per cent in the Index of Industrial Production (IIP), continued to decline in December 2013. Its output decreased 1.6 per cent in the month as against a 2.6 per cent fall in November. Manufacturing was down 0.8 per cent in December 2012.

Mining production managed to grow for the second month in succession but its expansion was small at 0.4 per cent as against a 1.72 per cent rise in November. It had seen a 3.1 per cent fall in December 2012.

Electricity was the only saving grace in the IIP data released on Wednesday. Power generation saw a 7.5 per cent rise as against 6.30 per cent a month earlier. It had increased 5.2 per cent in December the previous year. Experts say the IIP reading is in line with the advance estimates of Gross Domestic Product (GDP) released by the Central Statistics Office a few days back. The difference is that GDP data take the value of these production numbers into account.

"It is difficult to see sustainable growth in industries in the near term. However, a major positive has been the continuous positive growth in the electricity segment," says Devendra Pant, chief economist at India Ratings. Pant, however, says the recovery in the sector looks fragile. According to the advance estimates, industries will grow by a meagre 0.6 per cent in 2013-14 as against a 1.2 per cent growth in the previous year. Within that, manufacturing will contract for the first time since 1991-92.

Consumer durables witnessed a contraction for the 13th straight month as output fell 16.2 per cent in December as against a fall of 8.1 per cent a year ago.

On the other hand, non-durables rose 1.6 per cent. As a result, consumer goods output went down 5.3 per cent as against a decline of 3.6 per cent a year ago.

Analysts say these reflect a continued slump in demand. "The underlying trend in these numbers is that domestic consumption remains weak and also, the investment in economy," says Shubhada Rao, chief economist at YES Bank.

Capital goods saw a 3 per cent decline in output as against a fall by 1.1 per cent in December the previous year. Experts are hopeful of an easier stance in the Reserve Bank of India's monetary policy after the weak industrial numbers coupled with moderating inflation.