News & Analysis

Economy: Factory Output Shrinks Again


Reality bites and how? At a time when the Union Finance Ministry is seeking to quell doubts of a major economic slowdown evidenced by the six-year low GDP numbers reported last quarter, here comes more worrisome news. A report published in the Business Standard based on official data says India’s industrial output contracted 4.3 per cent in September – its weakest in seven years.

The latest decline is attributed to an overall slump in growth across manufacturing, mining and electricity sectors. The situation is worrisome as the IIP has shrunk for the second consecutive month, after a decline of 1.1 per cent in August 2019.

According to the Central Statistics Office (CSO) data, the 4.3 percent contraction is the lowest in 2011-12 series of Index of Industrial Production (IIP), which was unveiled in May 2017. The IIP had declined by 0.7 percent in April, 2012.

The 1.1 per cent reduction in August had been an 81-month low, mainly on account of a contraction in manufacturing output and a deepening slowdown in capital goods production pulling down growth. According to the data released on Monday, the IIP contraction in August was further revised downwards to 1.4 percent.

During April to September, the IIP growth remained almost flat at 1.3 percent compared to 5.2 percent in same period last financial year.

A slowdown was witnessed in the manufacturing sector, which declined by 3.9 percent in September as compared to 4.8 percent growth a year ago.

The power generation sector output dipped 2.6 percent in September, compared to 8.2 percent rise a year ago.

Mining output too fell by 8.5 percent in September as against 0.1 percent climb in the corresponding month last fiscal.

Capital goods production, which is a barometer of investment, declined by 20.7 percent in September compared to 6.9 percent hike in the year-ago month.

Witnessing the constantly falling numbers, no wonder economists are expecting a further decline in the GDP. A report published by the Economic Times quotes a report released by the State Bank of India which predicts GDP growth at just 4.2 per cent in the second quarter.

India’s largest public sector bank has attributed the falling prediction to low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure. SBI has further attributed the declining GDP to the domestic parameters such as excessive rainfalls and floods which have negatively impacted the agricultural growth of the country.

The bank’s report says that growth rates are expected to pick up pace in FY21 to 6.2 per cent. “We also expect revisions to the GDP data as in the past, but that is likely in February 2020 as is the custom. In FY17, Q1 GDP figure was revised upwards from 7.1 per cent in every revision and finally settled at 9.2 per cent.”

It added, “We, however, believe this growth rate in FY20 should be looked through the prism of synchronised global slowdown (countries have witnessed 22-716 basis point decline between June 2018 and June 2019, and India cannot be isolated!).”

It is certainly high time that government buckles up and takes immediate actions to address the economy by providing money to the lowest income groups so that it can come back into circulation through increased sales of consumer goods and arrest the growth pangs.

As someone said, the first step to change is acceptance and it would be good for the government at the Centre to accept the inevitable.

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