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Last Updated : Oct 11, 2019 08:02 PM IST | Source: Moneycontrol.com

Industrial production shrinks 1.1% in August after 26 months

Manufacturing output, which accounts for more than three-fourths of the entire index, showed a decline of 1.2 percent in August, against a 5.2 percent rise in in the same period a year ago.

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India's industrial output contracted by 1.1 percent month-on-month (MoM) in August, according to the Index of Industrial Production (IIP) data released by the government on October 11.

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, showed a decline of 1.2 percent in August, against a 5.2 percent rise in in the same period a year ago.

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Mining grew 0.1 percent in August against a contraction of 0.6 percent in the same period a year ago.

Primary products grew 1.1 percent as against a 2.5 percent growth in the same period a year ago. Capital goods production contracted 21 percent as against a growth of 10.3 percent in August 2018-19.

Infrastructure goods contracted 4.5 percent in August against a growth of 8 percent in the same period a year ago. Consumer durables contracted 9.1 percent against a 5.5 percent growth in the same period a year ago.

Consumer non-durables grew 4.1 percent in August against a 6.5 percent growth for the same period a year ago.

For the April-June period, the eight infrastructure sectors averaged a 3.6 percent growth. Exports contracted 1.7 percent during the same period.

India's gross domestic product (GDP) growth in the March quarter slowed to a five-year low of 5.8 percent, down from 6.6 percent in the December quarter. Annual GDP growth slowed to 6.8 percent for the year that ended on March 31 from 7.2 percent in the previous year.

Factory output, which is measured by the index of industrial production (IIP), contracted in March 2019. This was its first such contraction in 21 months, showing the declining momentum of both investment and consumption. Even core industries productions of steel, electricity, coal and cement are falling or have been stagnant in recent quarters.

The national income data have reinforced signs that were emanating from a slew of shop-end data, such as car and consumer goods sales, often seen as proxy indicators to gauge trends in household spending.

"The policy measures announced by the government after first quarter GDP growth of 5 percent are more supply side interventions and unlikely to boost demand. With no fiscal space available to the government, it is unlikely that the demand in going to return back soon," Devendra Kumar Pant, Chief Economist and Senior Director, Public Finance India Ratings & Research (Fitch Group), said.

To combat the slowdown, Finance Minister Nirmala Sitharaman announced a cut in corporate tax rates in September, bringing it down to 22 percent from 30 percent for existing companies, and to 15 percent from 25 percent for new manufacturing companies.

"The Indian economy is presently facing a structural growth slowdown originating from declining household savings rate, and low food inflation and agricultural growth. Low agricultural growth is feeding into low agricultural and non-agricultural wage growth in rural areas, which is impacting rural demand adversely," Pant said.

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, followng similar action by the Asian Development Bank and the Reserve Bank of India (RBI).

Pant said that going forward, monetary authorities will continue to follow accommodative monetary policy and that further rate cuts are expected in December 2019 monetary policy.

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First Published on Oct 11, 2019 05:34 pm
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