Industrial output contracts in August for the first time in nearly two years
- India’s factory output, as measured by the Index of Industrial Production (IIP), contracted by 0.1 per cent in August for the first time after a gap of 21 months led by a high base effect along with decline in mining and electricity output.
Highlights:
- India’s industrial production, as measured by the Index of Industrial Production (IIP), experienced a contraction of 0.1% in August 2024, marking the first decline in 21 months.
- This dip was attributed to a high base effect and reduced output in key sectors such as mining and electricity. According to data from the National Statistical Office (NSO), this comes after a growth of 4.7% in July and 10.9% in August 2023.
Key Factors Behind the Contraction:
- Mining Output Decline: Mining activities contracted by 4.3% in August, compared to a 3.8% growth in July 2024 and 12.3% in August 2023. The decline was mainly due to heavy rainfall, which disrupted operations.
- Electricity Output: The electricity sector saw a 3.7% contraction in August, a sharp drop from 7.9% growth in July and 15.3% growth in August 2023.
- Manufacturing Slowdown: Manufacturing, which makes up 77.6% of the IIP, also slowed to a 22-month low of 1.0%. This drop is largely due to the high base effect, as output in this sector had grown by 4.4% in July and 10.0% in August 2023.
Use-Based Classification:
- Primary Goods: For the first time in 3.5 years, the primary goods segment saw a contraction of 2.6% in August. This follows a 5.9% growth in July and 12.4% in the same month last year.
- Capital Goods: Capital goods, an indicator of investment sentiment, grew by a modest 0.7% in August, down from 11.8% growth in July and 13.1% growth in August 2023.
Consumer Goods Outlook:
- Consumer Durables: Output in consumer durables, which reflects consumption demand, grew by 5.2% in August. This was lower than the 8.3% growth seen in July but still an improvement over the 6.0% growth recorded in August 2023.
- Consumer Non-Durables: Non-durable goods continued to show weakness, contracting by 4.5% in August. This is the third consecutive month of contraction, reflecting continued stress in rural demand.
Sectoral Analysis:
- Out of the 23 manufacturing sectors measured, 11 saw a contraction in August. Key underperformers included:
- Other Manufacturing: Contracted by 8.2%.
- Printing and Reproduction of Recorded Media: Fell by 7.1%.
- Fabricated Metal Products: Declined by 6.5%.
- Pharmaceuticals and Botanical Products: Decreased by 6.1%.
- On the other hand, sectors like electrical equipment (17.7%), wearing apparel (14.0%), and furniture (13.9%) showed the highest growth rates. However, experts noted that the growth in these sectors was mainly due to a base effect.
Expert Opinions:
- Rajani Sinha, Chief Economist at CareEdge Ratings, attributed the slowdown primarily to an unfavorable base effect and weather disruptions in the mining sector.
- Pras Jasrai, Senior Economic Analyst at India Ratings and Research, highlighted the sustained decline in consumer non-durables as a sign of rural demand stress, while acknowledging the steady growth in consumer durables.
- Madan Sabnavis, Chief Economist at Bank of Baroda, noted that some sectors like computers, electronics, and apparel benefited from a low base effect. He expects better growth rates from September, peaking during the post-harvest and festive season.
Prelims Takeaways:
- Index of Industrial Production (IIP)
- National Statistical Office (NSO)