India’s industrial output growth contracts 1.3% in December

India’s factory output declined again in December by (-)1.3 percent but was somewhat better than the (-)3.42 percent dip registered in the month before, official data showed on Friday.

The 1.3 percent decline in output at factories, utilities and mines was steeper than 0.1 percent fall forecast by economists surveyed by Reuters.

Industries that witnessed high positive growth included woolen carpets (184.1%), telephone instruments including mobile phone and accessories (141.1%), di-ammonium phosphate (46.8%), transformers (small) (38.8%), wood furniture (36.9%), paraxylene (32.3%), commercial vehicles (28.7%), gems and jewellery (27.1%), PVC pipes and tubes (24.6%) and polypropylene (including co-polymer) (22.2%).

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for December 2015 stood at 137.5, 192.0 and 183.2, respectively, with the corresponding growth rates of 2.9 percent, (-) 2.4 percent and 3.2 percent as compared to December 2014.

During April to December, industrial production climbed 3.1 percent from the same period of previous year. Retail food prices were up 6.85 per cent on the year in January, compared to 6.40 per cent in December. It stood at 5.19 per cent in January 2015.

Interestingly, Friday’s data comes days after the economy posted growth of 7.3 percent in the quarter through December, faster than the 6.8 percent growth posted by China in the same quarter.

Consumer durables output rose sharply by 16.5 per cent in December as against a contraction of 9.2 per cent during the same month past year.

What is more worrying is with the government set to hike salaries and pensions of its employees later this year, demand-driven price pressures are likely to get a boost. “Presuming a normal monsoon in 2016 and fiscal consolidation along the previously announced trajectory, ICRA expects CPI inflation to average 5.5 per cent in FY17, allowing for a final 25-basis-points cut in the repo rate during 2016”, said Nayar. Growth in power generation decelerated to 3.2 per cent from 4.8 per cent a year ago. “As both high-frequency data show deterioration, the macroeconomic management of the economy by the government as well as RBI is going to be more hard ahead, particularly when the Union Budget is due by the end of this month”, said Sunil Kumar Sinha, principal economist at India Ratings, a Fitch Ratings associate.

The data had shown consumption outpacing investments, signalling potential inflationary risks. “While we should not give too much importance to monthly fluctuations in industrial production, the figures show that there has not been a decisive recovery in manufacturing”. The output of consumer non-durables was lower by minus 3.2 percent.

It piles pressure on Finance Minister Arun Jaitley to unveil measures when he presents the budget to revive private investments, which have been dormant for the past four years.