India IIP Data: Industrial Production Contracts 3.8% In October 
Flames and smoke rises from red hot coke at a steel factory in India. Photographer: Dhiraj Singh/Bloomberg

India IIP Data: Industrial Production Contracts 3.8% In October 

India’s industrial output contracted for the second straight month, led by weakness across segments as the economy is yet to show signs of picking up.

The Index of Industrial Production contracted 3.8 percent over a year ago in October 2019, according to a statement by the Ministry of Statistics and Programme Implementation.

It was, however, better than the estimates and the previous month’s reading. The IIP had contracted 4.3 percent in September. And thirty-two economists polled by Bloomberg had forecast IIP to contract by 5 percent in October.

Despite an unfavourable base effect and the disruption caused by the late withdrawal of the monsoon, the pace of contraction was milder than feared, said Aditi Nayar, principal economist at ICRA Ltd.

For the April-October period, industrial output grew 0.5 percent compared with 5.7 percent a year earlier.

Sectoral Estimates

As many as 18 of 23 manufacturing industry groups saw a contraction in output in October. Manufacture of motor vehicles, computer, electronic and optical products saw a contraction in excess of 25 percent.

  • Manufacturing output contracted 2.1 percent in October compared with a contraction of 3.9 percent in September.
  • Mining output contracted 8 percent as against a contraction of 8.5 percent last month.
  • Electricity generation contracted 12.2 percent versus a contraction of 2.6 percent in September.
These numbers clearly suggest that the festival season could not arrest the declining growth momentum of the industrial sector, resulting in manufacturing clocking degrowth for the third consecutive month in October 2019.
Sunil Kumar Sinha, Principal Economist, India Ratings.

This is unprecedented as the new series of IIP with 2011-12 as the base year so far has not witnessed such consecutive months of contraction in either of manufacturing, mining and electricity sectors, he said.

Industrial output, as classified by the end-use of goods, also saw a deeper contraction across most categories though intermediate goods output remained positive.

  • Primary goods output contracted 6 percent in October compared with a contraction of 5.1 percent in September.
  • Capital goods output contracted 21.9 percent as against a fall of 20.7 percent in the previous month.
  • Intermediate goods output grew 22.2 percent compared with a 7 percent growth.
  • Infrastructure and construction goods output contracted 9.2 percent compared with a contraction of 6.4 percent rise in September.
  • Consumer durables contracted 18 percent against a decline 9.9 percent, while consumer non-durables output contracted 1.1 compared with a contraction of 0.4 percent the previous month.

Intermediate Goods Continue To Diverge

While output of primary goods, capital goods and consumer durables fell in the October series, intermediate goods—used as inputs in production—saw a spike.

Intermediate goods have outperformed the index since May. In October, the output for the category roes 22.2 percent, the highest in the series. Considering their importance in the supply chain, the sub-segment could be considered a lead indicator of a turn in cycle. But signals remain mixed.

According to Saugata Bhattacharya, chief economist at Axis Bank, two commodities — fragrances and oil essentials — contributed to most of this growth. Both are used in production of certain fast moving consumer goods but the sharp jump in these categories appears to be an anomaly, he said.

Output of capital goods—an indicator of investments— continued to contract along with consumer durables, indicating that demand is yet to pick up.

While the sharp contraction in capital goods and consumer durables appears alarming, it comes on an extremely high base of October 2018, said Aditi Nayar, economist at ICRA. The next month’s data would provide a clearer sense of how these two categories are likely to perform in the third quarter ending December, Nayar said.

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