Dashing hopes of recovery the industrial production contracted by 4.2 per cent in October, sharpest decline in at least two years, on poor show by manufacturing sector and dip in the output of capital as well as consumer goods.
The factory output, as measured by the Index of Industrial Production (IIP), had declined by 1.2 per cent in the same month last year.
For September, it was revised to 2.8 per cent from the provisional estimates of 2.5 per cent released last month, according to the data released by the Central Statistics Office today.
During the April-October period, IIP rose 1.9 per cent, as against 0.2 per cent in same period of last fiscal.
Manufacturing output, which constitutes over 75 per cent of the index, contracted by 7.6 per cent in October, compared to a dip of 1.3 per cent in the same month a year ago.
For April-October, the sector saw an output growth of 0.7 per cent, compared to a contraction 0.1 per cent in the year-ago period.
The production of capital goods, a barometer of demand, declined by 2.3 per cent in October, as against a growth of 2.5 per cent in same month of last year.
During April-October period, the output of capital goods grew by 4.8 per cent as against a dip in production by 0.2 per cent.
The consumer goods output too contracted by 18.6 per cent in October as against a decline in output at 5 per cent logged a year ago.
For April-October, the segment showed a contraction of 6.3 per cent, compared to a decline of 1.7 per cent in the same period of 2013-14.
Overall, 16 of the 22 industry groups in manufacturing showed negative growth in October.
India’s Oct industrial output contracts, builds case for rate cut
(Reuters) – India’s industrial output contracted in October, its worst performance in three years, while retail inflation continued its declining trend, building the case for the Reserve Bank of India to lower interest rates early next year.
Prime Minister Narendra Modi, who swept to power six months ago promising to oversee an economic revival, faces a challenge to revive investment in Asia’s third largest economy.
He has been helped by a fall of more than 40 percent in global crude prices since July which has brought inflation down, lowered the import bill and reduced government spending on fuel subsidies.
Industrial output unexpectedly contracted 4.2 percent year-on-year in October, dragged down by a fall in manufacturing and the capital goods output, government data showed on Friday.
“The IIP (industrial output) was shocking, I think there’s probably a one-off factor,” said Shivom Chakrabarti, senior economist at HDFC Bank in New Delhi. “Overall, it does highlight the fact that growth is still weak and inflation pressures are falling.
“It does put more pressure on the RBI to cut rates but I think given the guidance RBI has provided, it would be prudent for it to wait at least until February.”
Analysts polled by Reuters had forecast that output would grow 2.80 percent and retail inflation at 4.5 percent.
Retail inflation, which the RBI tracks to guide its interest rate policy, slowed to 4.38 percent in November, helped by falling fuel and food prices.
With growth struggling at 5.3 percent in the July-September quarter, it is likely to be some time before the country recaptures the 8 percent growth levels needed to create enough jobs for a rapidly expanding workforce.
Reserve Bank of India Governor Raghuram Rajan, who left policy interest rate unchanged this month, said on Friday the RBI would start talks with the government for an appropriate timeline to ensure the economy is within a medium-term inflation target of 2-6 percent.
While not as low as China’s, India’s inflation has come down steeply from over 11 percent in November last year, and is now lower than other BRICS economies – Brazil, Russia and South Africa.
Finance Minister Arun Jaitley, who will present the annual budget in February, told parliament on Wednesday a rate cut would help the economy, singling out prospects of increased mortgage lending.