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India’s Factory Output Contracts In June

India’s IIP falls 0.1 percent in June.

Employees use press punches to cut lock components at a Prabha Brasshands International factory in the Tala Nagri Industrial Area of Aligarh, Uttar Pradesh, India (Photographer: Udit Kulshrestha/Bloomberg)  
Employees use press punches to cut lock components at a Prabha Brasshands International factory in the Tala Nagri Industrial Area of Aligarh, Uttar Pradesh, India (Photographer: Udit Kulshrestha/Bloomberg)  

India's factory output contracted in June as companies cut stock and put fresh orders on hold ahead of the rollout of the Goods and Services Tax.

The index of industrial production fell 0.1 percent in June compared to a growth of 1.7 percent in May, according to data from the Central Statistics Office. The country’s factory output had grown 3.1 percent in April.

High real interest rates continue to buoy borrowing costs, weighing on industrial production, Bloomberg Intelligence economist Abhishek Gupta said in an earlier note. The Reserve Bank of India cut their benchmark lending rate by 25 basis points to 6 percent. However, with inflation at an all-time low, the real interest rate still remained considerably high compared to other large Asian economies.

"The effect of the GST on production is likely to fade in the months ahead", said Gupta.

The use-based classification of industrial output showed that production of primary goods in June fell 0.2 percent year-on-year while capital goods production fell 6.8 percent. The infrastructure and construction goods category saw a 0.6 percent increase in output.

Consumer durables production fell 2.1 percent, while consumer non-durables grew 4.9 percent over last year.

Other Highlights

  • Mining activity in June grew 0.4 percent over last year, after falling 0.9 percent in May.
  • Manufacturing declined 0.4 percent over last year, reversing the 1.2 percent growth in May.
  • Electricity generation went up 2.1 percent over last year, slower than 8.7 percent growth in May.
  • Manufacturing of electrical equipment was the biggest negative contributor as production fell 20.1 percent in June over last year.
  • Manufacturing of pharmaceutical products grew 19.2 percent over last year continuing its uptick from May.
  • Production of motor vehicles and trailers bounced back to grow 1.5 percent in June.