Weak IIP data could mean further cuts to FY19 GDP forecasts1 min read . Updated: 14 Jan 2019, 08:27 AM IST
November IIP data indicates weakness in both consumption and investments, and does not bode well for India's GDP growth rate in FY19
After surging to 8.4% in October, the Index of Industrial Production (IIP) slowed down significantly in November. Given that the base was high, some decline was anticipated but the headline IIP growth of just 0.5% was a substantial negative surprise. Consensus estimates for growth, which had kept the base effect in mind, stood at 3.5%.
What’s more worrying is that production growth in manufacturing, consumer durables and capital goods contracted simultaneously.
This signals weakness in both consumption and investments, and does not bode well for India’s GDP growth.
“Consumption growth has slowed down recently, especially as the farm sector concerns have intensified. Private sector investment is unlikely to see a sharp recovery given low capacity utilization across sectors, still-weak balance sheets and limited scope for the private sector to invest in the basic infrastructure sectors," Kotak Institutional Equities Ltd said in a report on 11 January.
Since IIP is used as an input for gross value added computation, this subdued performance would translate into weaker GDP growth in quarters to come. This raises risks of a further downward revision to GDP estimates for fiscal year 2018-19.
Recently, the Central Statistics Office released the first Advance Estimates for the current fiscal year. The federal statistics body projected an overall economic growth of 7.2% for the year ending 31 March 2019. This is lower than the 7.4% estimated by the Reserve Bank of India.