India’s industrial output contracted by 0.1% in June

New Delhi: India’s factory output, as measured in the terms of the Index of Industrial Production (IIP), declined by 0.1% in the month of June, compared to a 1.7% rise in the previous, its first fall since June 2013.

In terms of industries, eight of the 22 industries showed growth; pharmaceuticals and furniture posted the highest growth followed by tobacco and leather products.

A sharp contraction in capital goods production was a sign of concern. Capital goods output shrank 6.8% in June, compared to a 3.9% contraction in the previous month.

Output of the manufacturing sector showed negative growth of -0.4% in June from a 1.2% growth in May. Mining output showed signs of positive growth of 0.4% in June compared to a 0.9% contraction in the previous month. Electricity generation, however, increased slowly to 2.1% in June compared with a growth of 8.7% in May.

The Reserve Bank of India (RBI) in its latest monetary policy on 2 August had cut the repo rate by 25 basis points, citing a fall in the consumer price index (CPI) and boosting investment demand in the economy. It maintained a neutral policy stance due to uncertainties hovering around inflation.

“Consumption has been hit by demonetisation on durable side while investment is hit by idle capacity in the system. Since lead indicators of primary and intermediary goods are contracting, pointing towards tepid IIP growth going forward,” said Devendra Kumar Pant, chief economist, India Ratings & Research Pvt. Ltd.

Consumer durables declined by 2.1% in June compared to a 4.5% decline in the previous month.