Photographer: Anindito Mukherjee/Bloomberg

Industrial Output Contracts For The First Time In Almost Two Years

Industrial output in India contracted for the first time in 21 months, adding to concerns about slowing growth in the economy. Both capital goods and consumer goods output fell suggesting that the slowdown may be deepening.

The Index for Industrial Production fell by 0.1 percent in March 2019, compared with 5.3 percent in the same month a year ago, according to government data released on Friday. A month ago in February 2019, IIP had registered a minor growth of 0.1 percent.

Industrial output growth came in weaker than expected. A Bloomberg poll of 29 economists had forecast IIP growth at 1.2 percent.

Sectoral Growth

In the manufacturing sector, output across twelve of the 23 industry groups contracted in March 2019.

  • Manufacturing output growth stood at -0.4 percent compared to -0.4 percent in February 2019.
  • Mining grew by 0.8 percent compared to 2 percent the previous month.
  • Electricity output growth was at 2.2 percent compared to 1.2 percent last month.

Use Based Classification

Industrial output, as classified by the end-use of goods, showed a fall in output of both capital goods and consumer goods.

  • Primary goods output growth rose by 2.5 percent, compared to 1.2 percent in February.
  • Capital goods output declined by 8.7 percent in March 2019, as against a drop of 1.2 percent in the previous month.
  • Intermediate goods output fell by 2.5 percent, after growing by 1.2 percent in February 2019.
  • Infrastructure/construction goods output growth stood at 6.4, compared to 1.2 percent in February 2019.
  • Consumer durables output growth fell by 5.1 in March 2019, versus 1.2 percent in February 2019.
  • Consumer non-durables output grew by 0.3 percent in March 2019, as against 1.2 percent in February 2019.
Capital goods have contracted consecutively for three months during January-March 2019 after May-July 2017. On quarterly basis, IIP growth has been the lowest in new 2011-12 series, the same is true for manufacturing and electricity sector.
Devendra Kumar Pant, Chief Economist, India Ratings

FY19 Growth At Three Year Low

For the full financial year, industrial output grew by 3.6 percent compared to 4.42 percent for FY18. This is the lowest in three years.

Growth in the financial year just concluded has been hurt by weak rural demand, which impacted consumption. In recent months, signs of slower urban demand, particularly for items like automobiles, has added to the slowdown in industry. Government spending, which had propped up demand in FY18, has also petered-off due to pressures on government finances.

Madan Sabnavis, chief economist at Care Ratings said that economic momentum would remain subdued over the next few months.

Consumer spending will increase only gradually and hence there would be a tendency for growth to be subdued in the first few months of FY20. The important part will be government expenditure and the decision taken on capex before the main budget is introduced would need attention.  
Madan Sabnavis, Chief Economist, Care Ratings

Some expect the economy to see some stability after general elections are over. “A lot of this (the slowdown) is on account of transient and idiosyncratic factors,” said Sajjid Chinoy, chief India economist at JPMorgan. Chinoy cited the impact of emission norms on output on the automobiles. In addition, uncertainty on the domestic political front and the international front has hurt growth, said Chinoy.

A combination of those factors — elections, global uncertainty, after-effects of the NBFC troubles - have hurt growth. Also the terms of trade have turned adverse for the agriculture sector and that has hurt purchasing power in the rural economy.Undoubtedly, there are headwinds and drags here. But if you take a more forward looking perspective over the next three-four quarters, it’s not all gloom and doom.
Sajjid Chinoy, Chief India Economist, JPMorgan