NEW DELHI: DATA released on Friday has recorded India’s factory output for the month of October, based on the Index of Industrial Production, shrinking by 1.9 per cent. The development has only exacerbated concerns that industrial activity is in for a rough time, with experts saying that industrial activity in the months of November and December will likely continue to shrink due to the continuing fallout from demonetisation.
Factory output had rebounded to grow by 0.6 per cent only in September, after contracting in July and August. As of now, factory output for the six months between April to October stands at a disappointing 0.3 per cent against a growth of 4.8 per cent during the same period last year.
The concerns of industrial activity slowing down was also flagged by the Reserve Bank of India during its policy announcement on Wednesday. As for the impact from demonetisation and the resulting shrinking in demand, it said, “The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs.”
“... disappointing for the current month and we could have some more negative prints given the effect on demand from the move to demonetize. While some amount of decline can be attributed to a strong base effect, the broad story of subdued investments remains as capital goods have now contracted for a year in a row,” pointed out Richa Gupta, Senior Economist, Deloitte India.
A deeper perusal of the data released on Friday for October shows that both mining and manufacturing activity had contracted. The sharp decline has come mostly on account of contracting in production of capital goods and an overall poor showing from the manufacturing sector.
This is in direct contrast to the 9.9 per cent IIP growth in October last year, which was driven primarily by better performance from the manufacturing sector and increase in output of capital goods by 16.5 per cent.