Manufacturing contracts for first time in 2 yrs, pulls down GDP to 6-yr low

The manufacturing sector contracted for the first time in over two years, showed official data released on Friday.

The sector contracted by 1 per cent in the second quarter (July-September period) of this fiscal year, compared to a slow growth of 0.6 per cent in the previous quarter. Growth in the manufacturing sector stood at 6.9 per cent in the same quarter of the previous fiscal year. Manufacturing was the only sector which witnessed a decline in output during this quarter.

It was the manufacturing sector which pulled down the gross domestic product (GDP) growth to over six-year low of 4.5 per cent in the second quarter.

In the first half of this fiscal year, the output in the manufacturing sector fell by 0.2 per cent, compared to a robust growth of 9.4 per cent during the same period last year.

This is the second contraction in the sector on a quarterly basis in the past eight years — since the new GDP series started in 2012-13.

Some analysts blamed poor consumer demand for the slump. “We saw the weakest performance in the manufacturing sector which is a result of a persistent demand slowdown that has resulted in low capacity utilisation for the last 2-3 years,” said D K Srivastava, chief policy advisor at EY.

“Without capacity utilisation, there was no investment demand. As a result of weak demand for consumer products, the manufacturing sector contracted as it has excess capacity but no corresponding demand.”

Experts do not see green shoots in the sector going ahead as the output of eight core industries also fell in October. The core sectors contracted by 5.8 per cent in October, compared to a fall of 5.2 per cent in September, according to the data.

The GDP manufacturing numbers were in tandem with the index of industrial production data. The output in manufacturing had contracted by a sharp 3.9 per cent in September against 1.6 per cent in August. 

In fact, of the 23 sub-sectors within manufacturing, 17 had recorded year-on-year contractions in September, up from 15 in the previous month.