India's industrial output softened to 3.1 percent month-on-month (MoM) in May from 3.4 percent April, according to the Index of Industrial Production (IIP) data released on July 12.
"Though the number is lower than consensus but in comparison to Q4 of 2018-19, there is an improvement. Capital goods is seen in the positive terrain, good number clocked also on the infrastructure side. However, the numbers are nowhere close to early 2018-19. There will be improvement, but no sharp recovery is expected," said Anubhuti Sahay, Senior Economist, Standard Chartered Bank.
Industrial output, or factory output, is the closest approximation for measuring economic activity in the country's business landscape.
Manufacturing output, which accounts for more than three-fourths of the entire index eased to 2.5 percent in May from 2.8 percent MoM. Mining sector grew 3.2 percent in May against 5.1 percent in April, while electricity production grew 7.4 percent in May against 6.0 percent in April. Infrastructure goods grew by 5.5 percent in May.
Primary goods growth slowed to 2.5 percent in May against 5.2 percent in April, while growth in capital goods too slowed to 0.8 percent for the same period against 2.5 percent growth in April.
"Barring electricity other two sectors - mining and manufacturing witnessed sequential growth slowdown. Among use-based classification except consumer non-durable all other sector’s growth declined sequentially in May 2019. Only infrastructure goods and consumer non-durables grew in excess of 5% in May 2019. The lead indicators of industrial growth – primary goods and intermediate goods – do not instill confidence on near-term industrial growth recovery, which is expected to be lackluster in next couple of months," said Devendra Pant, chief economist, India Ratings & Research.
Production of consumer durables contracted 0.1 percent in May against a healthy 2.4 percent growth in April. Production of consumer non-durables grew to 7.7 percent in the same period against a 5.2 percent growth in April.
The manufacturing sector grew 3.1 percent in January-March 2019, up from 9.5 percent in the same quarter last year. For the whole year, the manufacturing sector stood at 6.9 percent in 2018-19, up from 5.9 percent in 2017-18.
"Generally, infrastructure/construction activities slow down during the monsoon period, however, the last year was an exception. One has to wait and watch whether the exceptional trend of last year would continue," Pant said.
Slowdown signs have been visible since last year, with GDP growing 6.6 percent in October-December 2018. The national income data have reinforced deceleration signs that were emanating from a slew of shop-end data, such as car and consumer goods sales, which are often seen as proxy indicators to gauge trends in household spending.
Earlier this year, the International Monetary Fund cut India’s gross domestic product growth forecast for 2019-20 by 20 basis points to 7.3 percent, following similar action by the Asian Development Bank and RBI.
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