Industrial production growth declined to a fourteen-month low of 0.4% in October, owing to a moderation in the manufacturing output growth (1.8%) and contraction in mining (-1.8%) and electricity (-6.9%).
The subdued index of industrial production (IIP) data came close on the heels of a strong 9.1% growth in gross value added (GVA) in manufacturing in July-September quarter upon a weak base (2.2%). It appears that after an increase in manufacturing activity ahead of the festive season, and GST cuts, companies have quickly normalised production.
IIP grew 4% in September
While the weaker IIP print can be partly attributed to fewer working days due to multiple festivals, the softness in momentum remains a key monitorable in the coming months, wrote CareEdge.
What is also worrisome is demand-side indicators also softened. Deceleration was seen in consumer non-durables (-4.4% versus -0.3% in year-ago month ), primary goods (-0.6% versus 1.3%) and consumer durables (-0.5% versus 10%). October also saw year-on year decline in intermediate goods (0.9% versus 6.3%), capital goods (2.4% versus 5.4%) and infrastructure and construction goods (7.1% versus 10.6%).
What did analysts at Crisil say?
“A substantial decline in merchandise exports (11.8% on-year), some moderation in government capex (which was frontloaded in the first half of this fiscal) and fewer working days in October explain the IIP’s weaker growth,” according to Crisil.
For the third quarter, however, the agency expects “sturdy consumption demand” to somewhat offset the negative impact of weaker export demand. Consumption is expected to remain healthy on account of robust rural incomes, low inflation, and policy support both from fiscal and monetary policy, it added.
The decline in consumer non-durables was sharper at -4.4% compared with -0.3% because of a sharp fall in food products (-8% vs -1.8%) and pharmaceuticals (-1.8% vs 1.8%). Growth in motor vehicles output declined to 5.8% from 15.1%, while wearing apparel recorded negative growth (-6.1% vs -3%). On the other hand, output growth improved in electronic and optical equipment (9.1% vs 7%) and other transport equipment (2.7% vs 2%).