The Index of Industrial Production (IIP) estimates from the National Statistical Office show that output shrank by 4.3% in September, 2019.
All the three component sectors in the index - manufacturing, mining and electricity - post contractions.
What is IIP?
IIP is a composite indicator measuring changes in the volume of production of a basket of industrial products over a period of time, with respect to a chosen base period.
It is compiled and published on a monthly basis by the Central Statistics Office (CSO) under the National Statistical Office (NSO).
It is published with a time lag of six weeks from the reference month.
What is IIP’s significance for this year?
This is yet another set of economic data from the NSO that reaffirms both the depth and all-pervasive width of the ongoing economic slowdown.
This was the sharpest contraction in output since April 2012, before which the data was referenced to a different base year.
Five of the six categories on the IIP’s use-based classification of goods registered declines, with only intermediate goods bucking the trend.
The prolonged slump in the output of capital goods (a proxy for investment activity by businesses) extended into a 9th straight month as production contracted by about 21% for the 2nd month in a row.
Consumer durables also posted a 4th straight contraction, with the 9.9% decline which is in stark contrast to September 2018’s 5.4% growth.
Clearly, manufacturers of white goods are struggling to find demand for their wares and the sliding production points to an absence of the traditional festival-eve restocking bump.
The second successive shrinkage in infrastructure and construction goods reflects the challenges besetting the two primary sectors.
Here, the Centre’s announcement of a funding initiative to help stalled housing projects ought to provide some fillip in the coming months.
But a stretched fiscal situation is likely to keep government spending on other big-ticket infrastructure projects muted for the foreseeable future.
What is the industry perspective?
From an industry perspective, 17 of the 23 industry groups that comprise the manufacturing sector contracted.
Leading the slump was the motor vehicles industry, which posted a 25% contraction.
SIAM - The wholesale data from the Society of Indian Automobile Manufacturers (SIAM) can be an indicator of trends for this industry.
In this, there is certainly more pain ahead as overall shipments fell almost 13% from a year earlier in October 2019.
Demand for newly introduced utility vehicles was the saving grace, as it propelled a marginal uptick in passenger vehicle deliveries.
SIAM’s figures on commercial vehicles, show that the 23% year-on-year decline, particularly underscore the demand vacuum in the rural hinterland and the wariness on the part of fleet operators to invest in new haulage capacity.
With manufacturing having a weight of almost 78% in the IIP, the latest report from IHS Markit gives little room for optimism.
Purchasing Managers’ Index – This is a survey-based index that revealed continuing manufacturing sector weakness in October 2019 as weakening demand hurt new orders and business sentiment.
The business confidence had slipped to its lowest level in more than 2½ years.
In Future - All signs now point to the central bank cutting interest rates again at its next meeting, in order to help spur a revival.
