Industrial output shrinks in August, a first in 22 months: Govt data

Experts attribute the fall to more than usual rainfall, demand slowdown

An unfavourable base effect and a slowdown in economic activities led to a year-on-year (Y-o-Y) contraction in the Index of Industrial Production (IIP) in August for the first time in 22 months, according to data released by the National Statistical Office (NSO) on Friday.

The data showed that industrial output fell by 0.1 per cent in August from 4.7 per cent growth in July, driven by contractions in the output of mining (-4.2 per cent) and electricity (-3.7 per cent), while manufacturing output growth decelerated sharply to 1 per cent during the month.

Previously, industrial output had contracted in October 2022 (-4.1 per cent).

Overall, during April–August 2024, the IIP registered growth of 4.2 per cent, compared to 6.2 per cent in the corresponding period of the previous year.

Experts attribute the dip in industrial production in August to heavier-than-usual rainfall, which dampened output in sectors like mining, electricity, and infrastructure. Also, skewed demand continues to affect consumption.

Dharmakirti Joshi, chief economist at CRISIL, said relatively heavier August rains likely dampened output in major industrial sectors, while weak demand also reflected in the slowdown in sectors such as consumer durables and continued contraction in consumer non-durables.

“The impact of a healthy monsoon on rural demand is expected to kick in during the second half of this financial year, which would support consumption,” he added.

Data showed that 11 of 23 manufacturing sectors in the IIP, including food products, beverages, paper, coke, and refined products, registered a contraction in output during August.

Meanwhile, output shrank in use-based categories such as primary goods (-2.6 per cent) and consumer non-durables (-4.5 per cent) in August, while categories like capital goods (0.7 per cent), intermediate goods (3 per cent), infrastructure goods (1.9 per cent), and consumer durables (5.2 per cent) saw decelerated growth during the month.

Rajani Sinha, chief economist at CARE Ratings, said that although the monsoon had been favourable, its distribution issues persisted.

“Domestic private consumption demand is expected to pick up during the early festive season this year. External demand remained weak, evidenced by two consecutive months of contraction in merchandise exports during July and August. Overall, a broad-based improvement in consumption and private capital expenditure remains crucial for driving overall industrial activity,” she added.

Aditi Nayar, chief economist at ICRA Ratings, said the available high-frequency indicators pointed to a mixed trend in the growth of economic activity in September, with the performance of some mobility-related indicators, including vehicle registration and petrol consumption, deteriorating partly due to the Shraadh period from mid-September 2024.

“Overall, ICRA anticipates the growth in the IIP to improve to 3-5 per cent in September, amid a likely narrower contraction in electricity and mining output, as well as a favourable base, and a sharp uptick in the growth in GST e-way bills supported by pre-festive stocking. Notably, base effects remain treacherous over the next few months, which are likely to muddy an analysis of how the economic growth momentum is unfolding,” she said.