Slump in Novem­ber IIP data could mean fur­ther cuts to FY19 GDP es­ti­mates


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 the coun­try’s gross do­mes­tic prod­uct (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 2019.

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.

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