IIP contracted in January for third month in a row

Manufacturing output shrinks 2.8%

Pulled down by manufacturing, industrial output fell for a third month, dipping by a quicker pace of 1.5 per cent in January compared to 1.3 per cent in December. This may prompt the Reserve Bank of India (RBI) to cut the interest rate next month as the Centre has kept its fiscal consolidation road map.

The Index of Industrial Production (IIP) had contracted by 3.2 per cent in November, the sharpest in past four years. Industrial output had risen 2.8 per cent in January 2015. Official data released on Friday showed that the cumulative industrial growth in the first 10 months of the current financial year was unchanged at 2.7 per cent over the corresponding period last year.

Experts said slow investment revival that has hit manufacturing was among the main causes for decline in industrial production in January. Manufacturing, which constitutes roughly three-fourths of the index, shrunk 2.8 per cent in January. It had declined 2.4 per cent in December, after declining 4.4 per cent in November. In April-January period, manufacturing grew 2.5 per cent, up from 1.9 per cent in the same period a year ago.

Growth in mining slowed down to 1.3 per cent in January from 2.9 per cent in December. However, electricity generation rose by 6.6 per cent in January after rising 3.2 per cent in December and 0.7 per cent in November.

Continued contraction in factory production may once again raise the criticism of GDP data as advance estimates showed manufacturing rising by 9.5 per cent in 2015-16 against 5.5 per cent a year ago. Also, manufacturing growth in GDP data rose 12.6 per cent in the third quarter of the current financial year against nine per cent in the second and 7.3 per cent in the first.

However, 18 of the top 26 products within manufacturing in the IIP data registered growth, up from 13 last month. Within manufacturing, capital goods, considered a proxy for investment demand, continued to contract sharply, declining 20.4 per cent in January after a 19.7 per cent slide in the preceding month. This clearly substantiated the concerns that investment cycle is yet to revive. Within capital goods, electrical machinery fell by the largest rate at 50.3 per cent in January. Office, accounting and computing machinery registered the highest growth rate at 41 per cent, followed by radio, TV and communication equipment at 22.4 per cent.

Consumer non-durables declined by 3.1 per cent. The growth in consumer durables cooled down considerably from 16.5 per cent in December to 5.8 per cent in January, hit largely by passenger car segments. Passenger car sales declined seven per cent in January.

However, Yes Bank chief economist Shubhada Rao sounded confident about the outlook. “Going into FY17, we are hopeful that triggers such as payouts on account of Seventh Pay Commission, One Rank, One Pension along with continued policy focus on infrastructure sectors like roads and railways along with facilitation of ease of doing business and lagged impact of past monetary easing will gradually result in a broader recovery in the industrial sector.” RBI will announce its annual policy on April 5. Consumer price inflation numbers for February will come on Monday.