Industrial output breaks 3-month downward streak, expands by 1.8% in Nov

The rise in IIP helped pull up cumulative growth in industrial output to 0.6 per cent in the April-November period of FY20

A rebound in manufacturing activity pulled up November’s overall industrial output, helping it to grow 1.8 per cent after declining for three consecutive months. Output had declined by 3.8 per cent in October after a 4.3 per cent contraction in September, the steepest fall in eight years.

The rise in the Index of Industrial Production (IIP) helped pull up cumulative growth in industrial output to 0.6 per cent in the April-November period of financial year 2019-20 (FY20), the data released on Friday showed. 

However, this was still lower than the 5 per cent rise in output registered in the previous fiscal year. Broad-based slowdown across sectors has meant that output was negative in four of the eight months till November in FY20. Manufacturing output rose 2.7 per cent in November.  

The sector accounts for 78 per cent of the index. In October, it had contracted 2.1 per cent.   

Return of manufacturing

Of the 23 sub-sectors within manufacturing, 10 recorded year-on-year contractions, down from 18 in the previous month. However, economists suggested that the worst may not yet be over. 

“As anticipated, a favourable base effect led to the IIP posting a turnaround to a mild growth in November 2019, although the pace trailed our expectations. On average, industrial performance remained lacklustre in October-November 2019, with a year-on-year decline of 1.2 per cent, driven by all the use-based categories, except intermediate goods and consumer non-durables,” Aditi Nayar, principal economist at ICRA, said.

Most importantly, the capital goods segment, which signifies investment, contracted 8.6 per cent in November, after a 21 per cent fall in the previous two months. Production in the category remained in the red for the tenth month, despite government efforts to open up even more sectors to easier foreign direct investment (FDI) flows earlier this year.

The IIP database showed that contraction remained entrenched across automobile segments, with motor vehicle production falling 12.6 per cent in November, albeit lower than the 28 per cent fall in October. 

Similarly, production of electronics also reduced almost 10 per cent in November, lower than the 30 per cent fall in the previous month. This comes in spite of the government pushing domestic production in the sector over the past two years through a series of benefits and a phased manufacturing programme, aimed at reducing imports of electronics goods.

Auto components, steel and sugar, were flagged by the government as sectors pulling down overall IIP growth. Machinery production shrank four per cent, lower than the 18.1 per cent contraction seen in the previous two months.

Consumer demand fizzles

A month after the festive season traditionally begins, November saw production of consumer durables contract for a sixth consecutive month. However, production contracted 1.5 per cent in November, a much lower pace than October’s 18 per cent. The contraction baffled economists who said e-commerce sales in October were very high.

Crucially, the consumer non-durables category turned positive in November, after having contracted for two months, with production growing 2 per cent. 

“The turnaround in factory output growth still cannot be interpreted as some kind of a green shoot on the industrial front. Until a majority of the use-based sectors show positive growth on a sustained basis, it would be difficult to believe that Indian industrial sector has come out of the woods,” Sunil Kumar Sinha, principal economist at India Ratings, said.

Meanwhile, mining output rose 1.7 per cent after an eight per cent fall in October. Contraction in electricity generation fell to five per cent from 12 per cent in October. 

Economists said the growth of mining output would strengthen in December 2019, while the pace of contraction of electricity generation would narrow, thereby supporting the overall performance of the IIP.