NEW DELHI: The industrial output data for August, which showed 1.1% contraction, adds to the string of other numbers, such as slumping vehicle sales, which are testimony to the slowdown that has gripped Asia’s third-largest economy, leading to a rash of growth downgrades by several economists, rating agencies and the central bank. The manufacturing sector declined 1.2% during the month compared with growth of 5.2% in the previous year-ago period. This was the first contraction in the sector in the past six months.
The capital goods sector, seen as a key gauge of industrial activity, contracted 21% in August compared with 10.3% growth in the same month a year earlier. Consumer durables sector declined 9.1% in August compared with growth of 5.5% in August 2018. The infrastructure and construction goods sector contracted 4.5% during the month, against growth of 8% in the same year-earlier month.
In terms of industries, 15 out of the 23 industry groups in the manufacturing sector contracted during August compared with the corresponding month of the previous year. The industry group ‘manufacture of motor vehicles, trailers and semi-trailers’ contracted 23.1% followed by 21.7% in manufacture of machinery and equipment 18.0% in ‘other manufacturing’.
Economists said they expect the sector to witness a rebound on the back of revival in the rural economy and an upswing in demand due to the measures unveiled by the government. They also said the dismal factory data may prompt the RBI to go for another interest rate cut when it reviews monetary policy in December. The central bank has unveiled five consecutive rate cuts to revive growth.
“Industrial output is expected to see pick-up in the coming months with the likelihood of improvement in the demand conditions (owing to festive season) and uptick in rural spending (aided by a good harvest),” said Madan Sabnavis, chief economist at Care Ratings.
“The favourable base in the upcoming months (barring October 2019) will also lend partial support to the overall growth. For the remainder of the fiscal year September 2019-March 2020, we are expecting industrial output growth to average around 5-6% on the premise of which the growth for fiscal year 2019-20 will be around 4-4.5%,” he said.