India's industrial production contracts 4.3% in September

Industrial Output Shrinks 4.3% in September in Weakest Showing since April 2012

Data released by the National Statistical Office (NSO) on Monday showed the index of industrial production contracted 4.3% in September, the second successive month of decline after the fall of 1.4% in August and lower than the 4.6% expansion posted in the year earlier period.

During April to September, the IIP growth remained nearly flat at 1.3 per cent compared with 5.2 per cent in same period last fiscal.

Contraction in manufacturing along with mining activity and subdued demand environment plunged India's September 2019 factory output deep in the red.

The indices of industrial production for the mining, manufacturing and electricity sectors showed de-growth of 8.5 per cent, 3.9 per cent and 2.6 per cent, respectively in the month of September 2019.

Economists say that weak series of data could mean economic growth for July-September period will remain near April-June quarter levels of 5 percent, which was a six-year low.

In terms of industries, 17 of 23 industry groups in the manufacturing sector have shown negative growth during September 2019 as compared to the same period previous year. The cumulative growth for the period April-September 2019 over the corresponding period of the previous year stands at 1.3 percent.

A slowdown was witnessed in the manufacturing sector, which declined by 3.9% in September as compared to 4.8% growth a year ago. Industrial output shrank at its lowest rate in more than six years last month, reflecting the impact of an economic slowdown that could prompt the central bank to cut its key policy rate for the sixth time in December.

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Capital goods production, which is a barometer of investment, declined by 20.7 per cent in September compared to a 6.9 per cent hike in the year-ago month.

"The sharp contraction in electricity generation in October 2019 is likely to have been led by multiple factors, including weaker demand from industry following curtailed production schedules in some sectors, as well as lower domestic demand and farm offtake related to higher than normal rainfall", said Nayar.

Meanwhile, output of infrastructure and construction goods declined by 6.4 per cent. "However, a possible rise of headline inflation above the medium term target of RBI (4 per cent) may act as a point of caution before the RBI goes for a rate cut".

Devendra Kumar Pant, chief economist and senior director of public finance at India Ratings & Research, said this is the first time since November 2012 that all three broad-based sectors have contracted.

"The Indian economy is now facing a structural growth slowdown originating from declining household savings rate, and low agricultural growth", Pant said. The IIP database showed contraction spread across all segments of the automobile sector, with motor vehicle production dipping by 25 per cent in September.

On the other hand, manufacturing of wood and products of wood & cork, except furniture; articles of straw and plaiting materials have shown the highest positive growth of 15.5% followed by 9.2% in basic metals.

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