India’s Industrial Output Falls More Than Forecast

Industrial production contracted for the second month in a row registering negative growth of 1.3 per cent in December mainly due to drop in the manufacturing sector.

As per data on index of industrial production (IIP) released by the Central Statistics Office, the cumulative growth of the country’s factory output logged a 3.1 percent rise in the first nine months of the current fiscal as against 2.6 percent growth during the corresponding period of last fiscal.

Output at factories, utilities and mines shrank an annual 1.3 per cent in December, another release showed, steeper than 0.1 per cent fall forecast by economists surveyed by Reuters.

Items which showed high negative growth during December 2015 over the same month in the previous year include “Cable, Rubber Insulated” [(-) 85.2%], “Heat Exchangers” [(-) 68.8%], “Cement Machinery” [(-) 60.2%], “Soyabean oil” [(-) 59.0%], “Polythene Bags including HDPE & LDPE Bags” [(-) 53.9%], “Grinding Wheels” [(-) 37.4%], “Ayurvedic Medicaments” [(-) 24.4%], “Boilers” [(-) 22.7%] and “Sponge Iron” [(-) 22.5%].

In the IIP, manufacturing hit -2.4% in December, compared with -4.4% in the previous month.

However, the consumer non-durable segment showed a contraction of 3.2 percent in December as against a growth of 5.6 percent in the corresponding month.

Retail prices rose 5.69 per cent on year in January, their fastest pace since August 2014.

The basic and intermediate goods’ output inched-up by 0.5 percent and 0.9 percent, respectively.

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.

Similarly, consumer durables recorded growth of 16.5% while consumer non-durables witnessed a decline of 3.2% and overall growth in consumer goods was 2.8%.

The dismal performance has been attributed to a massive drop in the output of capital goods, which showed a contraction of 19.7 per cent in December compared with a growth of 6.1 per cent in the same month a year ago.

Production in the industry group “electrical machinery and apparatus” showed the highest negative growth of (-) 44.9 per cent, followed by “publishing, printing and reproduction of recorded media” (-) 10.7 per cent and “tobacco products” (-) 8.2 per cent.

The data had shown consumption outpacing investments, signalling potential inflationary risks. The data also highlighted the disconnect between GDP numbers and high-speed indicators such as industrial production and vehicle sales.

Jaitley is under pressure to relax fiscal deficit targets in the budget and ramp up public spending to give the economy more momentum.