Home / News / India /  New worry as factory output shrinks in March

NEW DELHI : India’s factory output entered negative territory in March after a gap of 21 months, contracting 0.1% to signal a slowdown in consumption, as well as investment.

In February, the index of industrial production (IIP) was almost flat, growing at 0.1%.

Data released by the Central Statistics Office (CSO) on Friday showed that manufacturing, with 78% weightage in the index of industrial production (IIP), contracted 0.4% in March, while mining and electricity grew 0.8% and 2.2%, respectively.

The IIP figures validated the data released by the Society of Indian Automobile Manufacturers (Siam) last month, indicating a slowdown in urban demand with car sales growing 2.7% in 2018-19, the worst performance in five financial years.

The data also showed that the production of two wheelers and auto components were the biggest negative contributors.

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Twelve out of the 23 industry groups in the manufacturing sector were in the red in March. Both consumer durables (-5.1%) and non-durables (0.3%) showed lacklustre performance. The only segment that continued to fare well was consumer electronics, growing at 10.6%.

The IIP print surprised analysts because data released on 30 March showed the eight infrastructure sectors, which constitute 40.3% of the IIP, had recovered to post 4.7% growth in March—a five-month high, as production of steel and cement grew at a robust pace.

The IIP data also did not tally with the data released last month by the commerce ministry, which showed exports growing at double digits (11%) in March after a gap of five months.

Capital goods continued to contract for the third consecutive month (-8.7%) in March, signalling a dip in investment activity.

Madan Sabnavis, chief economist, CARE Ratings Ltd, said consumer spending will increase only gradually and, hence, there will be a tendency for subdued growth in the first few months of fiscal year 2020. “The important part will be government expenditure, and the decisions taken on capex before the main budget is introduced would need attention," he added.

The finance ministry, in its “Monthly Economic Report" for March released earlier this month, said the slowdown in economic activity in 2018-19 was because of declining growth in private consumption, tepid increase in fixed investment and muted exports. “On the supply side, the challenge is to reverse the slowdown in growth of the agriculture sector and sustain the growth in industry," it added.

Overall, in 2018-19, IIP grew 3.6%, which is the slowest in three years, against 4.4% a year ago. “This also means that there will be some downward revision in the GVA (gross value added) from manufacturing as the unorganized segment is represented by this number," Sabnavis added.

The Indian economy grew 6.6% in the December quarter, the slowest in five quarters, prompting the CSO to trim its 2018-19 forecast from the 7.2% estimated in January to 7% in February.

Last month, the International Monetary Fund cut India’s gross domestic product growth forecast for 2019-20 by 20 basis points to 7.3%, following similar action by the Asian Development Bank and the Reserve Bank of India (RBI).

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