India’s industrial output in August contracted for first time in nearly 2 years

New Delhi: India’s industrial output contracted in August—for the first time since October 2022—as the Index of Industrial Production (IIP) fell 0.1%, a stark contrast to the 4.7% growth recorded in July, according to estimates released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday.

The decline in industrial output was impacted by a sharp base effect across sectors, compounded by excessive rainfall in several regions.

This downturn follows a drop in India’s core sector output, which constitutes nearly two-fifths of the country’s industrial production, as six of the eight core sectors experienced slower growth or contracted in August.

Experts said overall industrial output in August was heavily influenced by a sharp base effect across sectors, with 11 of 23 distinct sectors in manufacturing contracting.

Also read | Growing jobs, tepid output: Contrasting story of manufacturing industry in 5 charts

“Industries like computers and electronics, readymade garments, and furniture had witnessed sharp declines last year, and hence were buoyed by this statistical effect,” said Madan Sabnavis, chief economist,Bank of Baroda.

“We may expect growth rates to be better from September onwards, with a peak being achieved by October-end, which would be the post-harvest and festival season when spending typically increases,” he added.

Aditi Nayar, chief economist and head of research and outreach at ICRA Ltd, said the 0.1% contraction in industrial output in August—“while unpalatable”—was not alarming, although the rating agency had expected a 1% growth.

The data “largely reflects the temporary dousing of mining output, electricity demand and retail footfalls by the heavier than normal rains, as well as an unfavourable base”, said Nayar.

“Overall, ICRA anticipates the annual growth in the IIP to improve to about 3-5% in September 2024, amid a likely narrower contraction in electricity and mining output, as well as a favourable base, and a sharp uptick in the growth in GST e-way bills, supported by pre-festive stocking,” Nayar said.

She, however, added that the base-effect factor would remain treacherous over the next few months, likely muddying any analysis of the economic growth momentum.
Core sectors affected

In August, manufacturing grew by 1%, slower than July’s 4.6%. Mining and electricity output contracted by 4.3% and 3.7%, respectively, compared with 3.7% and 7.9% growth during the previous month.

Output of primary goods contracted 2.6% in August, after growing at 5.9% in July. Production of capital goods rose 0.7%, much slower than the 12% growth in the month before.

Output of consumer non-durables contracted by 4.5%, after having declined 4.4% in the previous month. Production of infrastructure and construction goods rose by 1.9%, against July’s 4.9% growth.

Also read | India’s IIP is losing its relevance as a lead indicator of economic growth

According to the Ministry of Commerce and Industry data released on 30 September, the index of eight core industries fell by 1.8% annually in August, compared with a 6.1% increase in July.

The data showed that only two of the eight sectors—fertilisers and steel—reported a sequential rise in production in August.

Meanwhile, the output of coal, crude oil, natural gas, refinery products, cement and electricity contracted.

Also read | Pour resources into rural India for a manufacturing boom

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