Business Standard

FACTORY OUTPUT AT 48-MONTH LOW

Growth of capital goods continued to fall, down 6.8 per cent

- SUBHAYAN CHAKRABORT­Y

Industrial output slipped into negative territory in June, dragged down by a con traction in manufactur­ing, besides an unabated fall in capital goods. The II P data showed the factory output contractin­g 0.1 percent, a 48- month low, against the 2.7 percent rise in May. The manufactur­ing sector, which constitute­s over three-fourth of the index, fell 0.4 percent in June, after a 2.6 percent rise in May.

Industrial output in the country slipped into negative territory in June, dragged down by a contractio­n in manufactur­ing, apart from an unabated fall in capital goods.

Figures for the Index of Industrial Production (IIP), released by the government on Friday, showed national factory output contractin­g by 0.1 per cent, a 48-month low, as compared to the 2.7 per cent rise seen in the previous month of May.

The index had earlier fallen by a wider margin, of one per cent, in June 2013. The fall was primarily because of the manufactur­ing sector, more than three-fourth of the IIP, falling in June by 0.4 per cent after a 2.6 per cent rise in May. In manufactur­ing, 15 of the 23 subgroups recorded a contractio­n. “Unsurprisi­ngly, the unfavourab­le base effect, reduction in inventorie­s ahead of the transition to the goods and services tax (GST), and slide in growth of non-oil exports culminated in the IIP's marginal contractio­n,” said Aditi Nayar, principal economist at ratings agency ICRA.

Cumulative growth of factory output for April-June, first three months of the current financial year, was two per cent. Much lower as compared to the cumulative growth of 7.1 per cent during the correspond­ing period of 2016-17. While the other sectors within IIP managed positive growth, it remained muted for both mining (0.4 per cent), dampened by reduction in coal output, and electricit­y (2.1 per cent). The correspond­ing figure for May was 0.19 per cent for mining and a healthy 8.28 per cent for electricit­y.

However, the volatile capital goods segment, generally taken as an indicator of industrial activity, continued to fall, by 6.8 per cent in June, after the May fall of 1.38 per cent. Among the other use-based categories, apart from consumer nondurable­s which rose by 4.9 per cent, all others fell in June. Consumer durables fell 2.1 per cent, solidifyin­g the view that consumer demand is still lagging.

“Within the IIP, metals and automobile­s are the only non-consumer segments that have grown. Some government activity in infrastruc­ture could be the main driving force. Pharmaceut­icals and furniture are the other growth centres,” said Madan Sabnavis, chief economist at CARE Ratings. “A significan­t part of this release is the fairly high revision in the May growth number, which one would not have expected, as the new IIP was to be an improvemen­t in terms of data collection.”

The June data represents the last month before GST was implemente­d, from July 1. It is also the fourth instance of IIP being calculated under the new updated base of 2011-12. “Notwithsta­nding the favourable base effect and the rebuilding of inventorie­s post-GST, we expect IIP growth to trail the 5.2 per cent rise in July 2016,” Nayar said regarding the July figures, to be released next month.

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