Industrial production slips to 5-month low of 4.4% in March

Growth in the primary goods category within the Index of Industrial Production (IIP) is expected to be marginally weaker for March

The country’s industrial output grew by 4.4 per cent in March, the slowest in five months, as manufacturing production growth halved from the month before and the capital goods segment saw contraction. 

The manufacturing segment, which constitutes the bulk of the index at 77.6 per cent, rose 4.4 per cent in March, almost half the 8.5 per cent rise in February. As many as 12 of the sub-sectors of manufacturing, with a weight of 30.6 per cent in the Index of Industrial Production (IIP), recorded a year-on-year contraction in March. 

However, mining and electricity recorded modest improvements, driven by coal and thermal generation, respectively. While mining output rose by 2.8 per cent, reversing the 0.3 per cent contraction seen in the earlier month, electricity generation registered a higher growth rate of 5.9 per cent, up from February’s 4.5 per cent.

While March saw a slowdown among all use-based classification groups, a sudden contraction in capital goods output may have dragged IIP growth  down.

The capital goods segment within the IIP, which connotes investment, contracted by 1.8 per cent, its worst performance in nine months. The segment had seen a healthy rise of 19.5 per cent in February and had been on a growth run for seven months, fuelling growth.

A sharp contraction in gold jewellery output, a possible fallout of the multi-billion-dollar Nirav Modi scam, might have contributed to the slowing growth of the consumer durables sector, experts said. Also, the largest segment, primary goods, continued to be plagued by low growth, registering a 2.9 per cent rise in March. Robust growth in aggregate auto production and a sharp uptick in coal  production would help the prospects of IIP growth in April, said Aditi Nayar, principal economist at ICRA.

“While output growth in FY19 is likely to be better than in FY18 due to expectation of a normal monsoon, robust vehicle sales, infrastructure focus and sector-specific programmes such as housing for all, faster resolution of stressed assets in the banking sector and limiting fiscal slippage will be key factors to watch,” said Devendra Kumar Pant, chief economist at India Ratings.

Industrial production growth for the entire 2017-18 stands at 4.3 per cent, down from the 4.6 per cent seen in the year before. This is the macroeconomic data to be released before the government brings out the GDP figures for 2017-18 by the end of this month. “The average 6.2 per cent IIP growth in Q4 FY18, in conjunction with healthy earnings being reported by corporates, suggests a continued uptick in GVA growth for the just-concluded quarter, despite the adverse impact of higher commodity prices on earnings,” Nayar added.