IIP remains in negative zone, shrinks 0.7 percent in August

New Delhi: Contracting for the second month in a row, industrial production dipped 0.7 percent in August due to a slump in manufacturing and mining though the industry remained optimistic that the festive season and the recent rate cut will push up growth.

In the manufacturing space, capital goods brought about the maximum fall.

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 IIP slump in August is lower than in July.

On a cumulative basis, the factory output in April-August contracted by 0.3 percent, compared with a growth of 4.1 percent in the year-ago period.

"Satisfactory monsoon, upcoming festive demand and recent cuts in interest rates have the potential to lift the growth in coming months," said Ficci Secretary General A Didar Singh.

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

Industry body Assocham said the August IIP number is a "dampener with a huge drop in capital goods, meaning the investment cycle is stubbornly stuck in a shell".

Earlier this month, the Reserve Bank reduced the key interest rate by 0.25 percent, bringing it down to a 6-year low of 6.25 percent.

The official data released this evening showed that the manufacturing sector, which constitutes over 75 percent of the IIP index, contracted by 0.3 percent in August as against 6.6 percent expansion in the same month last year.

The capital goods output registered a steep decline of 22.2 percent in the month, against a growth rate of 21.3 percent last year.

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. 

The data of ministry of statistics and programme implementation showed that power generation remained almost flat (0.1 percent) as against an expansion of 5.6 percent in the year ago period.

Output of consumer durables registered a growth of 2.3 percent while it was almost flat in non-durables.

Overall, consumer goods production grew 1.1 percent in August compared with 6 percent a year ago.

CARE Ratings said it does not expect capital goods to witness significant growth this year until capacity utilisation improves due to higher demand.

In terms of industries, seven out of 22 industry groups in the manufacturing sector have shown negative growth in August year-on-year.

Aditi Nayar, Vice-President and Senior Economist, ICRA, said consumption demand is set to improve appreciably in coming months, given the record kharif harvest forecast, implementation of revised pay and pensions and the impending festive season.

Some important items showing high negative growth in August include cable, rubber insulated, sugar machinery, woolen carpets, gems and jewellery, and rice.

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