Factory output fall may pull down GDP growth; here’s what economists suggest to counter slowdown blues

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Published: May 11, 2019 10:44:43 AM

Even as factory output fell to a 21-month low in March, the situation may not improve in the first few months of FY20 on account of the increased likelihood of lower investment activity and uncertainties around the elections, the analysts said.

iip, Industrial outputThe factory production growth had fallen earlier to a 20-month low of 0.1 per cent in February and was recorded at 5.3 per cent in March 2018.

Even as factory output fell to a 21-month low in March, the situation may not improve in the first few months of FY20 on account of the increased likelihood of lower investment activity and uncertainties around the elections, the analysts said.The index of industrial production (IIP) or growth in industrial output that was at a three-year low of 3.6 per cent, down from 4.4 per cent in FY18 is unlikely to pick up in the first few months of FY20, CARE Ratings said in a report. The decline may bring down the GDP growth in fiscal 2019 with other things remaining constant, some experts also said. The factory production growth rate moves in sync with the GDP growth trajectory, said  Devendra Kumar Pant, chief economist, India Ratings & Research.

In such a scenario when consumer spending is also low, government expenditure become important and the decision on capex before the main budget would need attention, Madan Sabnavis, chief economist, CARE Ratings said. The factory production growth had fallen earlier to a 20-month low of 0.1 per cent in February and was recorded at 5.3 per cent in March 2018. The fall in the growth of primary goods and surge in contraction of intermediate goods, and weakness in investment and consumption activities shows the industrial activity to remain very weak in the coming days,” Devendra Kumar Pant added.

Also read: Explained: What slowed down India’s economic growth

Taking stock of the scenario, Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers said the Reserve Bank of India (RBI) may now have more room for a rate cut in June’s monetary policy. With muted inflation outlook and real policy rate way above long period average, the chances for rate cut continue, he noted. However, rate cut may not help much as transmission of rate cut has remained a problem, he also said, adding fiscal stimulus in form of tax cut may be a better suggestion.

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