India’s industrial production as per the Index of Industrial Production(IIP) decreased 0.8 per cent in August, against a marginal rise of 2.2 per cent in July, defeating analysts’ expectations. The broad based slowdown resulted in India’s industrial growth contracting for the first time in 18-months. Heavy rains experienced in various parts of the country also contributed to dampening of the production by reducing construction activity and electricity demand. Manufacturing output, down by 0.7 per cent and mining output, with a decline of 3.9 per cent, were the primary factors that dragged the industrial growth in the month of August.
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IIP likely to turn positive in September
“In an unpleasant surprise, the IIP contracted in August 2022, with heavy rains dampening construction activity and electricity demand, and the bleak manufacturing output belying the hope generated by the robust GST e-way bill data. In our view, it is better to look at the uptrend in the GST e way bills in August-September 2022 for cues regarding the strength of festive demand, than the tepid manufacturing growth print of August 2022,” said Aditi Nayar, Chief Economist, ICRA.
She added that the on-year growth of several high frequency indicators, such as Coal India Limited’s output, vehicle registrations, electricity generation, ports cargo traffic, rail freight traffic and diesel consumption, improved in September, against August 2022, amidst ongoing festive season.This, Nayar said, “is likely to help the IIP return to a positive, albeit modest growth, in the just-concluded month.”
Global slowdown to weigh on domestic industrial growth
A global slowdown is already affecting the country’s exports and the damage could spill over onto the domestic credit and capex cycles through price and liquidity channels, analysts at Nuvama (formerly Edelweiss Securities Ltd) said. “Overall, the weak IIP is in tune with the softness seen in other high-frequency real indicators such as railway freight ex-coal, port traffic, and electricity consumption. Although some strength in capital goods is encouraging and services unlocking could lend some support to some of the lower-income segments, a slowing global economy would weigh on India’s exports– the key driver of recovery,” they added.
International agencies such as the IMF recently warned of global recession in some countries this year, though it noted that compared to other countries ‘India has been doing fairly well and is expected to grow robustly next year’. Economists at Bank of Baroda, however, believe that tight global monetary conditions, price pressures, and Ukraine-Russia conflict might derail India’s economic recovery. “Going forward, the production is likely to be buoyant due to the onset of the festive season and the second half of this fiscal is expected to provide significant support to industrial growth on the back of a favourable base,” the economists added.
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