Production of capital goods—machinery used in factories—contracted by 8.6% in November, though not as sharply as was seen in the previous month (Photo: Reuters)
Production of capital goods—machinery used in factories—contracted by 8.6% in November, though not as sharply as was seen in the previous month (Photo: Reuters)

Factory output makes modest recovery in November, driven by manufacturing

  • The factory output recovery was also aided by expansion in mining, which grew by 1.7%, after two months of contraction and no growth in the month before
  • The improvement in industrial production is likely to reassure the govt as it gives shape to the Union budget

NEW DELHI : India’s industrial production recovered from three months of contraction to expand by 1.8% in November, signalling an early but weak improvement in the economy.

The recovery, which comes against the backdrop of near-flat output growth seen in the same month a year ago, was driven by a 2.7% expansion in manufacturing output, official data from the Central Statistics Office showed on Friday.

Manufacturing output had been shrinking for the past three months with a 2.1% contraction in October. It had seen a 0.7% contraction last November.

The factory output recovery was also aided by expansion in mining, which grew by 1.7% in November, after two months of contraction and no growth in the month before. Electricity generation, however, continued to contract for the fourth month with supply shrinking 5% in November.

The improvement in industrial production is likely to reassure the Narendra Modi administration, as it gives shape to its Union budget to be presented on 1 February, that the deceleration in economic growth may finally be ending.

(Graphic: Paras Jain/Mint)
(Graphic: Paras Jain/Mint)

“This is an early sign of a gradual recovery. We would still need stimulus measures as investment is in the doldrums. This is weak growth over a weak base," said D.K. Joshi, chief economist, Crisil Ltd. The budget is widely expected to include measures to stimulate the economy and create jobs, with finance minister Nirmala Sitharaman holding extensive consultations with economists and industry experts. Modi told business leaders this week that the economy has the strength to bounce back.

Production of capital goods—machinery used in factories—contracted by 8.6% in November, though not as sharply as was seen in the previous month, indicating the continued scarcity of new investments in manufacturing. Official data had shown earlier in the week that gross fixed capital formation, a proxy for investments, which rose nearly 10% in FY19, will barely improve by 1% in FY20.

Production of consumer durables, such as household appliances, too, contracted 1.5% in November, its sixth straight month of de-growth.

Available data suggests the growth of mining output would strengthen in December 2019, while the pace of contraction in electricity generation would narrow, thereby supporting the overall performance of the IIP, according to Aditi Nayar, vice president and principal economist at rating agency Icra Ltd.

“Waning favourable base effect could, however, result in manufacturing, as well as the overall IIP, reverting to a disappointing contraction in December 2019," said Nayar.

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