Workers wire a Lucknow Metro Rail Corp. mass rapid transport (MRT) locomotive at the Alstom SA manufacturing facility in Sri City, Andhra Pradesh, India, on Tuesday, Aug. 14, 2018. Photographer: Udit Kulshrestha/Bloomberg

IIP Growth Slides To 17-Month Low In November 

Growth in industrial production in India fell sharply in the month of November, reigniting fears of a slowdown in the economy in the third quarter of the current fiscal year.

The Index of Industrial Production rose by a meager 0.5 percent in November 2018, compared with 8.5 percent in November 2017, according to data released by the Ministry of Statistics and Programme Implementation. Growth came in much lower than expected. A Bloomberg poll of 22 economists had projected a growth rate of 3.6 percent. Industrial output had risen by 8.1 percent in October 2018.

Growth between April-November 2018 now stands at 5 percent.

  • Manufacturing output contracted by 0.4 percent compared to 7.9 percent growth in the previous month. An adverse base effect due to strong 10.4 percent growth in November 2017 may have also subdued year-on-year growth rates.
  • Mining output rose by 2.7 percent year-on-year in November compared to 7 percent in October.
  • Electricity generation rose by 5.1 percent compared to 10.8 percent last month.

Though an adverse base effect and post festive winding down were expected to drag down growth, the sharper than expected correction has been disappointing, said Shubhada Rao, chief economist at Yes Bank. She partly attributed the contraction in manufacturing to the poor performance in the automobile manufacturing segment.

Tighter financing conditions led by a slowdown in the non-banking financial sector could have led to lower automobile production, dragging down manufacturing growth.
Shubhada Rao, Chief Economist, Yes Bank

Output in only 10 of the 23 industry groups saw positive growth, suggesting a broad-based slowdown.

Use-based classification of goods suggests that both capital goods and consumer goods saw weak growth.

  • Primary goods output rose 3.2 percent in November vs 6 percent last month.
  • Capital goods output contracted by 3.4 percent in November after rising 16.8 percent in the previous month. Data in this segment is often lumpy due to the nature of such orders.
  • Output of intermediate goods contracted by 4.5 percent in November compared to 8 percent in October.
  • Infrastructure goods production rose 5 percent in November compared to 8.7 percent last month.
  • Consumer durables output contracted by 0.6 percent in November after 17.6 percent growth last month.
  • Non-consumer durables output also contracted by 0.9 percent compared to 7.9 percent growth last month.

The numbers further strenghthen belief that industrial growth is still not on a sound footing, said Sunil Kumar Sinha, principal economist at India Ratings and Research.

High variability in industrial growth across sectors and within sectors on a month-on-month basis has led to lack of confidence even in higher growth in earlier months. 
Sunil Kumar Sinha, Director, Public Finance & Principal Economist, India Ratings and Research.

Weakness in industrial growth, together with falling inflation, will strengthen calls for easier monetary policy.

“If economic activity continues to stay soft then core inflation pressures could also see some easing going ahead thereby increasing expectations of accommodation in the next monetary policy meeting,” said B. Prasanna, Head of Global Markets Group at ICICI Bank.