Photographer: Vincent Mundy/Bloomberg

India’s IIP Growth Stagnates In February

India’s industrial output stagnated in the month of February, adding to a host of indicators now pointing to weakening economic momentum.

The Index of Industrial Production rose a mere 0.1 percent in February 2019, compared with growth of 1.7 percent in January 2019 and 6.9 percent in the same month a year ago, according to government data released on Friday.

A Bloomberg poll of 33 economists had forecast IIP growth at 2 percent. Over the April 2018 to February 2019 period, industrial output growth stands at 4 percent compared to 4.3 percent last year.

Industrial production growth in February was at its lowest since June 2017, shows Bloomberg data. Slowing IIP growth adds to signs of weakness in the economy. Import demand for consumer items has weakened in recent months and the purchasing managers’ index has fallen. While the Reserve Bank of India has projected GDP growth at 7.2 percent in FY20 compared to 7 percent in FY19, some analysts believe the forecast may prove be optimistic.

To support economic growth and private investment, the monetary policy committee has cut interest rates by 50 basis points since the start of this year. Subdued, albeit rising inflation, has allowed for lower rates.

Also read: CPI Inflation Rises As Food Prices Increase

India’s IIP Growth Stagnates In February

Sectoral Growth

The manufacturing sector is showing signs of weakness amidst slowdown in demand for items such as two-wheelers and passenger vehicles. Electricity growth was weak for a second consecutive month, pointing to weaker industrial demand.

  • Manufacturing output contracted by 0.3 percent in February 2019 compared to 3.9 percent in January.
  • Ten of the 23 industry groups in the manufacturing sector showed positive growth
  • Growth in mining stood at 2 percent in February as against 1.3 percent in January
  • Electricity generation grew by 1.2 percent in February compared to 0.8 percent in the previous month.
Industrial growth disappointed sharply in February 2018, printing at a 20-month low 0.1 percent year-on-year despite favourable base effect. On a sectoral basis, manufacturing has retracted into negative territory after a gap of two months. The significant contraction in capital and intermediate goods does not bode well for industrial momentum lately.
B Prasanna, Head - Global Markets, ICICI Bank

Use Based Classification

Industrial output, as classified by the end-use of goods, showed contraction in capital goods. This is not entirely unanticipated given high growth last year and in the early part of this year seen in this segment. Consumer goods growth, however, remains broadly stable.

  • Primary goods output growth rose by 1.2 percent in February 2019 versus 1.4 percent growth in January.
  • Capital goods contracted by 8.8 percent in February compared to a contraction of 3.2 percent in the previous month.
  • Infrastructure goods production rose by 2.4 percent compared to 7.9 percent in the previous month.
  • Consumer durables output rose by 1.2 percent compared to 1.8 percent growth in January 2019.
  • Consumer non-durables grew by 4.3 percent against a growth of 3.8 percent in January.
Capital goods sector which had shown an average growth of 8.9 percent during April-October period during FY19 and raised the hope of an incipient investment recovery in the economy is once again seems to losing steam. With the exception of December 2018, capital goods is recording negative growth in each month since November.
Devendra Kumar Pant, Chief Economist, India Ratings and Research
India’s IIP Growth Stagnates In February