Industrial production contracts at fastest pace in over seven years at 4.3% in September; consumer durables, non-durables register negative growth

Industrial output fell at the fastest pace in over seven years in September, adding to a series of weak indicators that suggests the country’s economic slowdown is deep-rooted and interest rate cuts alone may not be enough to revive growth.

Showing signs of sluggishness in the economy, industrial production shrank by 4.3 percent in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors, as per official data released on Monday, a PTI report said.

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This was a second straight month of contraction, after a decline of 1.4 percent (revised estimates) in August. Industrial output shrank at its lowest rate in more than six years last month, 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.

According to the Central Statistics Office (CSO) data, 4.3 percent contraction is the lowest in 2011-12 series of Index of Industrial Production, which was unveiled in May 2017. The IIP had declined by 0.7 percent in April, 2012, PTI said.

Representational image. Reuters.

Analysts polled by Reuters had forecast industrial output to fall 2 percent for the month.

“A contraction of industrial production by 4.3% in September is serious and indicative of a significant slowdown as both investment and consumption demand have collapsed,” said Rupa Rege Nitsure, chief economist of L&T Finance Holdings.

Factory output, measured in terms of Index of Industrial Production (IIP), had expanded by 4.6 percent in September 2018.

According to the data, contraction in IIP was further revised downward to 1.4 percent in August from 1.1 percent decline under provisional estimates released last month.

During April to September, the IIP growth remained almost flat at 1.3 percent compared to 5.2 percent in same period last fiscal.

A slowdown was witnessed in the manufacturing sector, which declined by 3.9 percent in September as compared to 4.8 percent growth a year ago.

The power generation sector output dipped 2.6 percent in September, compared to 8.2 percent rise a year ago.

Mining output too fell by 8.5 percent in September as against 0.1 percent climb in the corresponding month last fiscal.

Capital goods production, which is a barometer of investment, declined by 20.7 percent in September compared to 6.9 percent hike in the year-ago month.

As per use-based classification, the growth rates in September 2019 over September 2018 are (-) 5.1 percent in primary goods, 7 percent in intermediate goods and (-) 6.4 percent in infrastructure/construction goods.

Consumer durables and consumer non-durables have recorded growth of (-) 9.9 percent and (-) 0.4 percent, respectively.

In terms of industries, 17 out of 23 industry groups in the manufacturing sector have shown negative growth during September 2019 as compared to the same month last year.

The industry group 'manufacture of motor vehicles, trailers and semi-trailers' has shown the highest negative growth of (-) 24.8 percent followed by (-) 23.6 percent in furniture and (-) 22.0 percent in fabricated metal products, except machinery and equipment.

On the other hand, manufacturing of wood and products of wood & cork, except furniture; articles of straw and plaiting materials have shown the highest positive growth of 15.5 percent followed by 9.2 percent in basic metals.

Economists say that weak series of data could mean economic growth for July-September period will remain near April-June quarter levels of 5 percent, which was a six-year low. The government is likely to release April-September economic growth figures by the end of this month, Reuters said.

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.

“These are tough times for the RBI, as it cannot do much about it but there will be pressures on it to act ...Blunt tools like monetary policy may not be effective anymore,” Nitsure said.

-- With inputs from agencies