In its second contraction in the quarter, the Index of Industrial Production (IIP) declined 0.4 per cent in September, mainly on account of a poor show by the capital goods and consumer durables sectors, which contracted 12.2 per cent and 1.7 per cent, respectively, implying a slowdown in investment activity and demand.
The contraction was despite the eight core industries, with a combined weight of 38 per cent on IIP, growing a robust 5.1 per cent in the same month. The muted IIP numbers during the second quarter are likely to have a bearing on the GDP growth in the quarter.
Industrial growth in the second quarter stood at 0.5 per cent, better than the contraction of 0.1 per cent seen in the previous quarter. In the first half of the financial year, IIP grew just 0.1 per cent, compared with 5.1 per cent in the corresponding period last year. In the first quarter, the industrial segment in GDP had grown 0.78 per cent to account for a 5.5 per cent overall GDP growth.
“This puts the second-quarter GDP numbers under pressure and raises questions on sustainability of the past quarter’s growth of 5.5 per cent,” said Anis Chakravarty, senior director, Deloitte.
Manufacturing, which has a 75 per cent weight on IIP, contracted 1.5 per cent in September, while mining grew 5.5 per cent (the highest in over a year) — the second consecutive monthly expansion. Slowdown in manufacturing could have been on account of its forward linkage with electricity, which has been showing muted growth for the past few months. Electricity grew 3.9 per cent in September, compared with nine per cent in the same month last year. However, it was better than the 1.8 per cent growth seen in August.
“It is worrying to see electricity output showing a decreasing trend over the past quarter. This may lead to supply-side risks going forward,” said Chakravarty.
Despite the onset of festive season in September, the consumer demand remained subdued. This was reflected in the 1.7 per cent contraction of the consumer durables sector.
Since May this financial year, IIP has been contracting sequentially. The index, which stood at 170.3 points in May, is now down to 163.6.
In July, IIP had contracted 0.18 per cent before recovering to grow 2.2 per cent in August, (revised down from the earlier 2.7 per cent).
However, industrial growth may pick up in October on the back of a low base of last year, economists say. “Industrial growth is expected to display a short-lived pick-up in October, on the back of a benign base effect and easing contraction of merchandise exports,” said Aditi Nayar, senior economist, Icra. In October last year, IIP had contracted 4.9 per cent.
Ten of the 22 industries captured by IIP showed negative growth, with office, accounting and computer machinery contracting 30.7 per cent, followed by tobacco products (23.6 per cent) and electrical machinery & apparatus (19.4 per cent).
Basic and intermediate goods grew 3.5 per cent and 1.8 per cent, respectively.
According to use-based classification, some items that showed high contraction were cable, rubber insulated (-56.3 per cent), cement machinery (-57.7 per cent), and heat exchangers (at -47.2 per cent) among others.
