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Industrial Output in Negative; Experts Predict Erratic Growth

The Index of Industrial Production (IIP), commonly referred to as factory output, registered a negative growth of 1.1 percent for the month of August, according to data released by the Ministry of Statistics & Programme Implementation on Friday, 11 October.

The IIP stood at 4.3 percent in the month of July.

Negative growth in IIP suggests that the output from major industries has declined on a year-on-year basis for the month of August.

The data released suggested that the biggest crash came in the automobile sector, which recorded a 23 percent dip as compared to August, last year.

The manufacturing sector, which contributes over 77 per cent to the IIP, showed a decline of 1.2 per cent in output during August 2019 as against a growth of 5.2 per cent in the same month of last year.

Electricity generation declined by 0.9 per cent as against an expansion of 7.6 per cent in the year ago month while the growth in the mining sector was flat at 0.1 per cent.

The overall IIP growth during April-August period was 2.4 per cent, down from 5.3 per cent in the corresponding period of the last fiscal.

Devendra Kumar Pant, chief economist at India Ratings told BloombergQuint that “going forward, the IIP is likely to show erratic, low growth trend”.

He also said that the policy measures implemented by the government recently were supply-side interventions unlikely to boost demand.

“The Indian economy is presently facing a structural growth slowdown originating from declining household savings rate, and low food inflation and agricultural growth,” he said.

Also Read: Moody’s Cuts India GDP Growth Forecast to 5.8% for FY’20

‘Weakness in Investment Activity’: Experts

Aditi Nayar, economist at ICRA, told BloombergQuint that the weakness in capital goods output was a reflection of “subdued investment activity”.

“Notwithstanding an unfavourable base effect and the disproportionate impact of the weakness in a few segments of machinery and equipment, the sharp 21 percent contraction in capital goods output in August 2019 highlights the weakness in investment activity,” Nayar said.

She further told Business Standard that it was unlikely that GDP growth would meaningfully accelerate in the second quarter, “despite a favourable base effect”.

It is likely that GDP growth may not meaningfully accelerate in the second quarter of FY20, , she said.

Madan Sabnavis, chief economist at CARE Ratings told ET that consumer durables and capital goods were primarily responsible for driving down growth.

Sabnavis also reportedly said that the contraction meant “less demand for investment as well as stress in the financial sector.”

(With inputs from Business Standard, Economic Times and BloomberQuint)

Also Read: RBI Governor Says 5% GDP Growth a ‘Surprise’, Had Projected 5.8% 

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