The index of industrial production (IIP) data, released on Monday, stoked fresh concerns about private consumption. At 109.7, the consumer durables index for October remained the lowest for the same month since 2014. In the non-durables segment, the index reading of 129.6 for October was the lowest for the relevant month since 2016.
Analysts blame fewer working days due to Diwali, export slowdown, changing consumption pattern in favour of services in recent months for the poor index reading for October 2022. Of course, given that Diwali was celebrated in October five times between 2014 and 2022, this isn’t the only factor for the poor show in October 2022.
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Pronab Sen, former chief statistician and chairman of the National Statistical Commission, told FE: “What is happening is consumption is going up but people are not consuming much more goods but services. So, whatever was the pump-up based on the pent-up demand in manufacturing that we witnessed last year, that’s getting corrected now.”
As the latest GDP data showed, while the overall private final consumption expenditure rose 9.7% in the second quarter from a year before, manufacturing contracted 4.3%. Moreover, the non-corporate sector has a large role in the non-durables output, Sen said. Given that many of those units have been in trouble due to the pandemic, the contraction in the non-durables output for a fourth straight month through October “may actually be a supply-side issue”, he added.
Importantly, the current IIP, with 2011-12 base year, remains “outdated”, they say. However, the analysts have cautioned against reading too much into just one-month data, as the IIP is “notorious for fluctuations”.
Crisil chief economist DK Joshi said consumption in rural areas is weaker than in the urban areas. This reflects in the contraction in non-durables. “Consumer non-durables IIP declined for a fourth month in a row (-13.4% in October vs -6.3% in the previous month), indicating significant weakness for low value items. Food and tobacco products saw declining production, a Crisil note said separately. The durables output contracted for a third straight month in October; it witnessed the worst slide (15.3%) since July 2020.
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Icra chief economist Aditi Nayar said, “To some extent, muted exports have dragged down consumer and capital goods in October 2022 relative to October 2019. Diwali was around the same dates in 2019, so export weakness is a likely contributor.” The output of key export-oriented sectors like leather, apparels and textiles–all trailed pre-covid levels in October, she added.