August IIP shocks with factory output up 0.6%

Manufacturing contracts 0.1%, mining, durables hit

After a recovery in exports and correction in trade deficit, India’s industrial production presented a dismal picture with growth of just a little over half-a-per cent in August.

Contraction in manufacturing, capital goods as well as consumer goods production pulled down growth in factory output to 0.6 per cent in August compared with 2.8 per cent in July.

While manufacturing, which constitutes nearly 80 per cent of industrial production, contracted 0.1 per cent in August from a year earlier, capital goods output, a barometer for investments in the economy, declined by 2 per cent and consumer goods that signifies consumption in the economy, dropped 0.8 per cent. This implies neither investment nor consumption is pushing growth in the economy.

The latest IIP data has also diminished hopes of a recovery in the economy by the end of this year as claimed by the government. The government has pinned hopes on a strong recovery in agriculture sector and exports to reignite the growth process but analysts said India’s recovery largely depends on the revival of investment.

Economists saw pain on Monday when another set of data is likely to show a rise in wholesale prices and consumer price inflation. Upset over the decline in the capital goods sector and a sharp deceleration of consumer goods industry especially consumer durables, the India Inc called for an urgent remedial action.

“What is especially discouraging is the sharp decline in output of all sub-sectors, manufacturing and mining, which continue to be under stress owing to a spate of inhibiting factors such as high interest rates, flagging investments, policy bottlenecks and subdued demand conditions.

A tight monetary policy announced by RBI to check the resurgence of inflation has further created conditions which depress demand. This calls for an urgent remedial action,” CII said in a statement.

Assocham said, “The IIP for August aptly mirrored the ground realities. The signs of industrial activity witnessed in July 2013 have fainted now as they were mostly cyclical. The negative growth in critical industrial segments, especially in the festive season calls for a serious thinking by policy makers.”

The IIP in simplest terms is an index which details out the growth of various sectors in an economy.

“Looking at the negative growth in consumer durables, at this juncture, increased lending to consumers at lower interest rates will greatly benefit industry by encouraging festival season demand,” Ficci said.

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