16 out of 23 industry groups in the manufacturing sector have shown negative growth during the month of December 2019.
The factory output in the month of December contracted again after a mild uptick in November 2019. The index of industrial production (IIP) shrunk by 0.3 per cent in the last month of 2019. While the street estimated the factory production to expand on the backdrop of green shoots of economic revival, the contraction may once again bring back the cloud of pessimism. The manufacturing output expanded by 2.9 per cent in December 2018, which shrunk by 1.2 per cent in December 2019.
India’s businesses and industries showed subdued growth in the last calendar year, on the back of a major economic crisis. Consequently, the GVA growth rate of the industry has been hit much more severely than the overall economy. Going by the February’s bulletin of RBI, the GVA growth rate of industry dramatically fell from 9.9 per cent in Q1 FY19 to 6.1 per cent in Q2 FY19; 1.7 per cent in Q1 FY20; and -0.5 per cent in Q2 FY20. Industries include mining, food processing, beverage & tobacco, textiles, leather, petroleum, chemicals, etc.
The growth rates in the indices of Industrial Production for the mining and electricity sectors for the month of December 2019 stood at 5.4 per cent and (-) 0.1 per cent, compared to December 2018. The cumulative growth in the three sectors, mining, manufacturing, and electricity, during April-December 2019 over the corresponding period of 2018 has been 0.6 per cent, 0.5 per cent, and 0.8 per cent respectively, according to the Ministry of Statistics & Programme Implementation. In terms of industries, sixteen out of the twenty three industry groups in the manufacturing sector have shown negative growth during the month of December 2019.
“The contraction in the IIP in December raises concerns about the sustainability of the green shoots in industrial activities that were visible until last month. This does not bode well for the overall economy as global headwinds already pose significant challenges to overall industries,” said Rumki Majumdar, Economist, Deloitte India. The large outbreak of the coronavirus in China can adversely impact India as China is one of the largest trading partners and with several factories being closed down in China temporarily, the electronics and auto industry in India will likely be hit because of their dependence on Chinese imports of components and raw materials, Rumki Majumdar added.
Meanwhile, the output of core industries returned to positive territory in December after four months of contraction, buoyed by five out of eight of its constituents – coal; refinery products; fertilizers; steel; and cement. Capacity utilisation (CU) in the manufacturing sector, measured by the Reserve Bank’s order books, inventory and capacity utilisation survey (OBICUS), fell to 69.1 per cent in Q2 from 73.6 per cent in the first quarter.