Bikky Khosla | 14 May, 2019
The Index of
Industrial Production (IIP) contracted by 0.1% in March. This was against the
consensus growth expectation of 1.2%. Also, it is after a gap of 21 months the
index entered negative territory. Factory output is the closest approximation
for measuring economic activity in the business landscape and the March figures
therefore deserve attention. Signs of slowdown in the economy have been visible
for quite some time now, and the latest figures exacerbate this concern.
In February
2019, growth in IIP stood at 0.1% and for the month of March, 2018 total growth
recorded was 5.3%. Also, for the full year to March, factory output growth was
at a three-year low of 3.6%. According to data released by the Central
Statistics Office, while growth in eight core infrastructure industries hit a
five-month high of 4.7% in March, capital goods growth at -8.7% continued its
negative trend. Manufacturing too contracted by -0.4%.
These
figures are not at all encouraging. Capital goods output is a proxy for
investment activity and its consecutive fall in three months during
January-March 2019 is a real concern. Consumer durables output, which is an
indicator of urban demand, also fell 5.1%, against 6.2% growth in March last
year. Similarly, there was growth only in 12 of the 23 industry groups in the
manufacturing sector.
This
weakness in both investment and demand along with declining growth of primary
goods and deepening contraction of intermediate goods signal to fragile
industrial activity in the near term. The March IIP figures also validated the
auto sector data released by SIAM last month, showing a slowdown in urban
demand, with car sales growing at a five-year low of 2.7% in 2018-19. These are
not good signs for the economy.
I invite
your opinions.