August IIP contracts by 1.1%, lowest in seven years on dismal performance of manufacturing, capital and consumer goods

Industrial output shrank at its lowest rate in more than six years in August, reflecting the impact of an economic slowdown that could prompt the central bank to cut its key policy rate for the sixth time in December. Annual industrial output contracted 1.1 percent in August compared with 4.6 percent growth in the previous month, government data showed on Friday. It was the worst performance since a 1.7 percent contraction in November 2012. The IIP last time contracted by 1 percent in the month of June 2013.

#AugustIIP | August IIP At -1.1% Vs CNBC-TV18 Poll Of 1.36% pic.twitter.com/gPTWCJuGOA

— CNBC-TV18 (@CNBCTV18Live) October 11, 2019

The Index of Industrial Production (IIP) had expanded by 4.8 percent in August 2018. The manufacturing sector, which contributes over 77 percent to the IIP, showed a decline of 1.2 percent in output during August 2019 as against a growth of 5.2 percent in the same month of last year, PTI reported.  The previous low in the manufacturing segment was recorded at (-) 1.8 percent in October 2014. Providing further details of the IIP, the NSO data showed the worst performance came from the capital goods segment as its output shrank by over 21 percent as against an expansion of 10.3 percent in August last year. Consumer durables output too declined by 9.1 percent in August 2019 as against 5.5 percent growth in the same month of 2018. [caption id=“attachment_4222713” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Another poor-performing segment was infrastructure/ construction goods. It showed a decline of 4.5 percent in August 2019 as against a growth of 8 percent in the corresponding month of last year. ‘Intermediate goods’ sector, however, showed a healthy growth of 7 percent, up from 2.9 percent in the year-ago month. Consumer non-durables segment posted an expansion of 4.1 percent in August. This compares with 6.5 percent expansion in August 2018. In terms of industries, 15 out of the 23 industry groups in the manufacturing sector have shown negative growth during August 2019 as compared to the corresponding month of the previous year. Electricity generation declined by 0.9 percent as against an expansion of 7.6 percent in the year ago month while the growth in the mining sector was flat at 0.1 percent. Analysts polled by Reuters had forecast industrial output for the month to have grown at 1.8 percent. Subdued inflation and an economic slowdown have prompted the Reserve Bank of India (RBI) to cut interest rates by a total of 135 basis points this year, including a 25-basis-point cut last week, making it the most aggressive central bank in Asia. “Another rate cut in December seems likely,” Shilan Shah, of Capital Economics, said before the release of the data. The overall IIP growth during April-August period was 2.4 percent, down from 5.3 percent in the corresponding period of the last fiscal India’s infrastructure output fell in August from a year earlier, the first contraction since April 2015, signalling the recovery in Asia’s third-largest economy may be slow despite a cut in the corporate tax rate and other policy measures designed to spur investment. India’s passenger vehicle sales slumped 23.7 percent in September, the 11th straight month of declines, prompting an industry body to flag more job cuts if sales failed to pick up soon. Car and auto component makers have cut thousands of jobs and halted some production as the industry grapples with various challenges amid a broader economic slowdown. The government stepped in last month, announcing a corporate tax rate cut to boost manufacturing and lift growth. The government has also seen tax collections falling due to weakness in the economy. Collections from India’s nationwide goods and services tax (GST) fell to a 19-month low in September, while direct tax collection growth since the beginning of the current fiscal stands at 6 percent so far, below the required growth rate of 17 percent. (With inputs from agencies)