Plunging capital goods output dragged IIP: India Ratings

A persistent contraction in capital goods output, which reflects a lacklustre investment demand, led to a fall in August IIP growth, India Ratings and Research (Ind-Ra) said today.
Index of Industrial Production (IIP) contracted 0.7 per cent year-on-year in August.
The rating agency added that industrial growth is unlikely to return to a sustained positive growth path so long as private sector investment cycle does not revive.
"The sustained large contraction in capital goods output for 10 consecutive months since November 2015 is a clear pointer that investment demand is down and out and its recovery is nowhere in sight," it said.

IIP witnessed a broad-based weakness in August 2016 with a sharp contraction in mining, negligible growth in electricity, and a 0.3 per cent decline in manufacturing output.
Noting that although mining has not been doing well now for more than five years, the rating agency said a contraction in August 2016 was witnessed after a gap of 13 months.

"It appears that despite the legal hurdles plaguing this sector subsiding over the past one year, the pain is still not over," Ind-Ra said.
At the use based level, capital goods output continued its negative trend.
The rating agency pointed out that given the existence of excess capacity in several manufacturing sectors, the capital goods sector is unlikely to do well, which is reflected in the overall IIP data.

However, Ind-Ra believes that in case the consumer goods sector shows sustained growth in the near-term, it may lead to a classical manufacturing/industrial revival.