IIP falls for second straight month in August by 0.7%

August Industrial Production falls sharply to-0.7
August Industrial Production falls sharply to-0.7

12 October, 2016

The factory output, as measured by the index of industrial production (IIP), had slipped to an 8-month low of (-) 2.5 percent (revised) in July on account of declining output in manufacturing and capital goods sectors.

The marginal growth in the overall consumer goods segment (it grew 1.1% in August and 0.9% in the April-August period) has also been supported by the consumer durables sector in recent months, which was reflected in good auto sales as well.

The Quick Estimates of Index of Industrial Production (IIP) for August 2016, released by the Central Statistics Office of the Ministry of Statistics and Programme Implementation, said the General Index for the month stood at 175.3. The cumulative growth for the period April-August 2016 over the corresponding period of the previous year stands at (-) 0.3 percent.

Remaining in the negative for the second month in a row, industrial production contracted by 0.7 per cent in August due to slump in manufacturing, mining and capital goods segments.

The data revealed that mining activities shrank by 5.6 percent as in August this year as against a growth of 4.5 in August 2015.

Consumer goods production grew just 1.1 per cent in August from 6 per cent a year ago, pointing to tepid consumer demand.

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"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. A modest pick-up in non-durables helped prop consumer goods output. "On the other hand, "Radio, TV and communication equipment & apparatus" has shown the highest positive growth of 15.2 percent, followed by 14.6 percent in 'Other transport equipment" and 12.4 percent in 'Basic metals".

"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".

Some important items that have registered high positive growth are fruit pulp, air conditioner, instant food mixes, ship building and fix, scooter and mopeds, stainless/alloy steel and boilers.

The massive plunge in insulated cables output was also reflected in the index for electric machinery, which dropped by as much as 49.4% in August, also recording tenth consecutive month of contraction.

Ficci further said the depressed private investment climate and global economic growth continue to impact the manufacturing sector growth in India.

"We might witness some improvement in demand conditions in H2FY17", he says.

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