Corporate / SME News | News & Insights

Index of Industrial Production (IIP) contracts 1.1% in August.

Published: October 14, 2019

This was the sharpest decline in industrial output growth since February 2013.

Industrial growth shrank 1.1% in August, after a gap of 26 months, reinforcing fears of a slowing economy and deteriorating consumer sentiment.

Industrial production, as measured by the index of industrial production (IIP) had grown 4.8% August last year.

Data released by the statistics office on Friday showed April-August factory output growth at 2.4% well below 5.3% for the same period in the last fiscal.

“IIP growth has been lowest in last 81 months and first contraction after June 2017,” said Devendra Kumar Pant, chief economist, India Ratings.

In all, 15 out of 23 industry groups reported positive growth.
Production of consumer non-durables, a barometer for the rural economy, rose 4.1% in August but that of consumer durables, demand for which is more urban centric, shrank 9.1%. Production of capital goods, an indicator of investment activity, contracted 21%.

“Growth has been driven down sharply by consumer durables and capital goods. Quite clearly both the drivers of the economy are very much down and need a major push,” said Madan Sabnavis, chief economist at CARE Ratings.

Two of the three key constituents of IIP–manufacturing and electricity contracted 1.2% and 0.9%, respectively while mining growth was 0.1%.

India’s passenger vehicle sales slumped 23.7% in September, the eleventh straight month of declines.

As per Pant, further rate cuts in December 2019 monetary policy as 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,” he said.

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