Industrial output shrinks by 4.3%, steepest decline in eight years

First, the numbers. The country's industrial output shrunk by a staggering 4.3 per cent for the second month on the trot in September, recording its worst performance since the present series was launched in April 2012. In fact the decline was the steepest in eight years, and was only surpassed by a bigger drop way back in October 2011.

What triggered such a huge fall?

Major loss in manufacturing output and a deepening slowdown in capital goods production, among other factors, are the key reasons behind the latest contraction, which was much higher than the 1.4 per cent fall in August. 

In fact, the data released on Monday shows that the Index of Industrial Production (IIP) fell by the highest margin since October 2011.

Beside this, mining output also fell by 8.4 per cent and electricity generation by 2.6 per cent in September.

September saw the manufacturing sector, which accounts for 78 per cent of the IIP index, slow down to a much greater extent. That month, the sector's output contracted by 3.9 per cent, which was much higher than the 1.6 per cent contraction in August.

Of the 23 sub-sectors within manufacturing, 17 recorded year-on-year contractions, up from 15 in the previous month. The IIP database showed that the contraction spread across all segments of the automobile sector, with motor vehicle production dipping by 25 per cent.

Auto components, commercial vehicles and two-wheelers were flagged by the government as sectors pulling the overall IIP growth down. 

However, machinery production was down 18.2 per cent and the production of electronic goods remained contractionary, declining by 10.6 per cent in September. This, even after the government gave boost to manufacturing in a sustained manner over the past one year, through a series of benefits and a phased manufacturing programme aimed at reducing electronic imports.

The capital goods segment contracted 20 per cent in September after a 21 per cent fall in August.

Production in the category remained muted for the eighth-straight month despite government efforts to open up even more sectors to easier foreign direct investment (FDI) flows earlier this year.

How have economists reacted to the crisis?

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