Industrial output fell 4.2 per cent in October, the most in three years, against growth of 2.5 per cent in September. This was despite the festive season and a favourable base-effect — in October 2013, production had fallen 1.2 per cent.
The Index of Industrial Production (IIP) had previously declined more than 4.2 per cent in October 2011, when it had registered a five per cent fall.
The decline in October was primarily due to a sharp 7.6 per cent contraction in the manufacturing sector, against 2.5 per cent expansion in the previous month, official data showed on Friday. In October last year, output in the manufacturing sector had declined 1.3 per cent.
The fall in industrial production in October was the first this financial year. It is likely the decline will hit expectations economic growth in the second half of this financial year will be more than 5.5 per cent, the growth in the June quarter.
In October, the decline in manufacturing, which accounts for 75.52 per cent of the IIP, was the lowest in five years and seven months.
“This has happened due to the complete absence of consumption, both in rural and urban markets. As a result, production of consumer durables was severely low,” said Madan Sabnavis, chief economist, CARE Ratings.
Within the manufacturing sector, consumer durables production declined 35.2 per cent.
Sabnavis said there was no appetite for spending due to high inflation. “I do not see any scope of revival in the months to come. This is a demand-side problem, with supply issues as well,” he added.
Besides durables, production of fast-moving consumer goods fell 4.3 per cent in October. Among other segments, capital goods production fell 2.3 per cent, which doesn’t augur well for industrial production in the coming months, too.
Though the government was taking measures to ease business and remove red-tapism, the real issue was addressing fundamental problems, which would take a long time, Sabnavis said. He added the fall in industrial production in October, when demand was ideally high due to the festive season, could be linked to the 280 per cent rise in gold import during the month. He said this meant people had probably invested more in gold than consumer durables.
In October, as many as 16 of the 22 industrial groups saw a decline in production, including computing machinery, television sets, radio, gems and jewellery and furniture.
For the April-October period, cumulative rise in industrial production stood at 1.9 per cent, compared with 0.2 per cent in the corresponding period last year, according to data released by the Ministry of Statistics and Programme Implementation.
Production in the mining and electricity segments rose significantly in October. In October, output in the mining sector rose 5.2 per cent, compared with 0.7 per cent in the previous month. Production in the sector had fallen 2.9 per cent in October 2013.
Electricity generation rose 13.3 per cent in October, against 3.9 per cent in September. It had increased 1.3 per cent in October last year.
“The fall in manufacturing output wiped out gains from higher production in mining. Mining will gain further traction next year, when new (coal block) auctions start. And, some amount of activity is happening there. The electricity segment remains positive, though household consumption is not doing well,” said D K Joshi, chief economist, CRISIL.
Aditi Nayar, economist, Icra, said, “Some indicators suggest an uptick in manufacturing output in November. For instance, after contracting five per cent in October, automobile production expanded 12 per cent in November.” She added the average growth for October-November this year would provide a clearer picture of the evolving trends in factory output in the third quarter of FY15.
“Given the fewer number of working days on account of a shift in the festive calendar, the sharp contraction in manufacturing output in October should not be construed as a cause for alarm,” she said.
Industry, meanwhile, sought a cut in interest rates by the Reserve Bank of India (RBI). “Substantial efforts have been made by the government to ensure a recovery in the economy. Action is already visible and results are on the ground. Industry is also positive about additional investments. All this can now be complemented by a reduction in interest rate by RBI,” said Chandrajit Banerjee, director-general of the Confederation of Indian Industry.
In October, the eight core infrastructure sectors had expanded a healthy 6.3 per cent, raising hope of good industrial production. Data on the core sectors do not take into account production in the consumer durables segment.
An early indication of industrial production had been provided by merchandise exports, which fell five per cent in October on an annual basis, the first decline this financial year. At that time, experts had felt demand in India wasn’t as low as in foreign markets.