IIP growth slows down to 0.5%
INDUSTRIAL GROWTH IIP falls to 0.5% on contraction in manufacturing sector
NEWDELHI:INDIA’S factory output growth crashed to its lowest in 17 months at 0.5% in November, the outcome of an unfavourable base effect as well as contraction in manufacturing.
The index of industrial production (IIP), announced by the Central Statistics Office (CSO) on Friday is the last set of key economic data to be released before the interim budget is presented on February 1.
NEW DELHI: India’s factory output growth crashed to its lowest in 17 months at 0.5% in November, the outcome of an unfavourable base effect as well as contraction in manufacturing.
The index of industrial production (IIP), announced by the Central Statistics Office (CSO) on Friday is the last set of key economic data to be released before the interim budget is presented on 1 February.
The previous low was in June 2017, when IIP growth fell to -0.2%. During November, manufacturing production shrank 0.4%, while electricity and mining output grew 5.1% and 2.7%, respectively. Items that recorded the highest negative growth included television sets; bodies of trucks, lorries and trailers; and active pharmaceutical ingredients. After the initial turbulence following the introduction of the goods and services tax (GST) in July 2017, when factories reduced their stocks, growth in the IIP recovered in November that year to hit a robust 8.5% as factories restocked during the festive season. This acted as a negative base for the November IIP growth in 2018. The trend toward an unfavourable base effect, as shown in the data released on Friday, is unlikely to be a one-off. Average IIP growth in the second half (October-march) of the last fiscal year, at 6.1%, was much higher than the first half (April-september) at 2.6%.
This narrative gels with the gross domestic product data released by the CSO on Monday, which showed India’s $2.7 trillion economy is headed for a slowdown in the second half of the fiscal year ending 31 March with the federal statistics body projecting an overall economic growth of 7.2% for 2018-19.
With the economy already recording a 7.6% GDP growth in the first half (April-september) of the current fiscal, this implies growth is likely to slow at around 6.8% in the second half (Octobermarch). In addition, growth so far in 2018-19 has been driven by government spending on infrastructure.
This may be a challenge to sustain as the government is likely to cut back on capital expenditure to meet the fiscal deficit target which stands at 112% of its fullyear target in the first eight months till November.
However, slower
MANUFACTURING PRODUCTION DURING NOV SHRANK 0.4%, WHILE ELECTRICITY AND MINING OUTPUT GREW 5.1% AND 2.7%
than expected economic growth projection and a benign inflation scenario may force the Reserve Bank of India under its new governor Shaktikanta Das to change its stance and cut policy rates to support growth.
Retail inflation slowed down to 2.33% in November, below the central bank’s projection, from 3.38% a month ago.
Shubhada Rao, chief economist at Yes Bank said while the adverse base and post-festive season winding down of momentum along with fewer working days had been expected to lower IIP growth, the magnitude of the correction has been sharper than expected.