New Delhi: India’s factory output contracted for the second straight month in August falling by 0.7 per cent due to decline in manufacturing activity.
However, the contraction in August was less severe than in July when industrial production had seen a decline of 2.49 per cent.
In August manufacturing contracted by 0.3 per cent, mining by 5.6 per cent and capital goods by 22.2 per cent. Output of consumer durables registered a growth of 2.3 per cent while growth in non-durables segment was almost flat at 0.1 per cent. Overall, consumer goods production recorded a growth 1.1 per cent in August compared to 6 per cent a year ago.
On cumulative basis, the factory output in April-August contracted by 0.3 per cent, compared to growth of 4.1 per cent in the year-ago period. “The industrial production (IIP) data for August 2016 provided another disappointing print, with manufacturing volumes continuing to contract despite the boost from the double-digit growth of steel, passenger vehicles and two-wheelers,” said Aditi Nayar, senior economist, at rating agency ICRA.
She said that the sharp year on year de-growth in capital goods exerted the chief drag on the IIP in August 2016. “However, the other components recorded a mild growth ranging from 0.1 per cent to 3.6 per cent. The growth of IIP excluding capital goods rose modestly to 2.5 per cent in August 2016 from 2 per cent in July 2016,” said Ms Nayar.
“The latest figures depict a sluggish industrial economy that is beset by a lack of investment demand. A second negative print has essentially come on the back of another month of contraction in the capital goods segment with the usual category, rubber and insulated cables, exerting downward pressure," said Richa Gupta, Senior Economist, Deloitte India.
However there is hope that going forward consumption will see a growth due to good monsoon and pay hike of government employees. Ms Nayar said that consumption demand is set to improve “appreciably in the coming months, with the kharif harvest forecast at record levels, revised pay and pensions being implemented by the Central Government and the impending festive season.”
“While the confluence of such factors should support a higher volume growth in various consumer goods sectors in second half of FY2017, the impact of the same on the performance of the IIP may be muted by an adverse base effect for consumer durables,” she added.
“The depressed private investment climate and global economic growth continues to impact the manufacturing sector growth in India. Private investment activity remains sluggish and calls for sustained efforts to address the structural bottlenecks in the economy,” said apex industry chamber Ficci.
