Industrial Output Contracts 1.9% In October
October industrial output falls compared to an expectation of 1 percent growth
Industrial activity contracted in the month of October, slowing compared to the previous month, showed official data released by the Indian government on Friday.
The Index Of Industrial Production (IIP) fell 1.9 percent in October compared to growth of 0.7 percent in September. The reported contraction was contrary to an expansion of 1 percent projected by a Bloomberg poll.
For the April-October period, industrial output has contracted 0.3 percent compared to the previous year.
Among the key sectors, manufacturing and mining contracted while electricity saw marginal growth.
- Manufacturing output contracted 2.4 percent
- Mining output contracted 1.1 percent
- Electricity output rose 1.1 percent
The capital goods segment continue to weigh down the headline number with output falling 25.9 percent. A large part of this continued contraction in capital goods is still coming from the ‘rubber insulated cables’ segment where output fell 93 percent. The chief statistician of the country, TCA Anant, has in the past indicated that this abberation will be resolved soon.
Growth in the consumer goods segment remained patchy.
- Consumer non-durables output fell 3 percent
- Consumer durables output rose 0.2 percent
According to Nomura Global Market Research, the data reflects one-off effects of Diwali holidays.
Some moderation was expected owing to the one-off effect of the Diwali holidays (lesser working days), which fell in November in 2015, but in October in 2016, resulting in unfavourable base effects. Hence, average output growth in Sep-Oct gives a better picture of the industrial trend, in our view.Nomura Global Market Research
Tough Months Ahead
The pace of industrial output is likely to worsen over the next few months due to the government’s decision to withdraw Rs 500 and Rs 1000 noted. The decision, which withdrew 86 percent of the currency in circulation, had led to a decline in buying activity across sectors from auto to cement. The slowdown in demand, leading to a build-up in inventories, is likely to impact industrial activity.
An indication of this came through in the November Purchasing Managers’ Index (PMI) data. The November Nikkei manufacturing PMI, released last week, fell to 52.3 from a 22-month high of 54.4 in October.
According to the Reserve Bank of India, the withdrawal of specified bank notes (SBNs) could impact industrial activity in the near-term.
The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited.Monetary Policy Committee Resolution (December 7)
The RBI also lowered its growth estimate for the year saying that gross value added (GVA) growth is likely to settle at 7.1 percent in fiscal 2017 compared to the 7.6 percent expected earlier.