Industrial production contracts 0.4% in December

IIP had risen by 5.7% in November; April-Dec IIP at 0.3% vs 3.2% YoY

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Workers erect scaffolding to build a pillar at the site of the metro railway flyover under construction in Ahmedabad (Pic: Reuters)

Subhayan Chakraborty New Delhi

Last Updated : Feb 10 2017 | 6:25 PM IST

Industrial output fell 0.4% in December from a year earlier, driven down by a contraction in consumer and capital goods production, government data showed on Friday.

A month back, industrial production belied all expectations of huge adverse impact of demonetisation with the index rising to a 13-month high of 5.7% in November against a contraction of 1.8% in the previous month.

The cumulative growth of the country's factory output for the April-December period was 0.3%, much lower as compared to the cumulative growth of 3.2 % during the corresponding period of the last fiscal.

Manufacturing, which constitutes three-fourth of the index feel by 2 % as compared to the 5.5% rise in November. Electricity generation was up by 6.3 % as against a 9% rise in November. Similarly, mining rose by 5.2 % in December as against a 4% rise in the previous month.

Similar to the main index, Capital goods also fell by 3 %. After declining by huge percentage each of the previous 12 months, capital goods had seen a spurt of 15% in November. It had declined almost 27% in October. Capital goods sector is highly volatile in IIP.

In November, economists had said the IIP figures did not reveal the true picture of the economy. "The IIP base year has not been updated," Crisil Chief Economist D K Joshi had said, arguing the data represented a "false positive".

"This implies that the growth rate indicated is too high. It was expected to be in the negative zone as November was the first month to have captured the impact of demonetisation," Joshi had said.

The sharp rise was also due to statistical illusion - low industrial numbers in November 2015, which is called base effect in a technical jargon - and a sharp reversal of a 12-month declining trend in capital goods.

The index had fallen by 1.8 % in October. Economists argue that month-to-month calculations based on the data is too volatile and it cannot be used to make long-term projections.