India’s December factory output falls post-note ban

industries
A month after the government went in for demonetisation, India’s factory output contracted by (-)0.4 per cent during December, official data showed on Friday.

The factory output, as per the Index of Industrial Production (IIP), had risen by 5.7 per cent in November 2016. Earlier, it encountered a (-)0.9 per cent slide in the corresponding month of the previous year.

As per the IIP data released by the Central Statistics Office (CSO), the contraction was mainly on account of a 2 per cent decline in manufacturing output, which has the maximum weight in the overall index.

The data reflects the impact of the government’s demonitisation drive which was launched on November 8, 2016, as well as seasonal factors. Even the equities investors were nervous ahead of the release of the IIP data, which capped gains and dragged the key domestic indices to close on a flat note.

In contrast, the output of other two major sub-indices — mining and electricity — expanded during the last month of 2016.

The electricity generation increased by 6.3 per cent while mining output was up by 5.2 per cent.

The cumulative growth of the country’s factory output inched up by 0.3 per cent in the first nine months of the current fiscal.

Besides, the data revealed that among the six use-based classifications of the index, the output of consumer goods segment contracted by (-)6.8 per cent in December.

The consumer non-durables segment’s output decreased by five per cent, whereas the consumer durables segment edged lower by (-)10.3 per cent.

The capital goods segment, which is a key indicator of economic activity, dipped by three per cent. The intermediate goods’ output inched down by (-) 1.2 per cent.

However, the basic goods’ output rose by 5.3 per cent.

Overall, only 17 out of the 22 industry groups in the manufacturing sector showed negative growth during the month under review.

Segment-wise, high negative growth was reported in the woollen carpets ((-) 51.3 per cent), three-wheelers (including passenger and goods carrier) ((-) 43.3 per cent), scooter and mopeds ((-) 26.3 per cent), motor-cycles ((-) 24.6 per cent) and pressure cooker ((-) 20.4 per cent).

Moreover, growth was witnessed in cable, rubber insulated (55.5 per cent), vitamins (37.4 per cent), aviation turbine fuel (32.7 per cent), ship building and repairs (31.2 per cent), sponge iron (28.9 per cent), plates (22.3 per cent) and tractors (complete) (21.4 per cent).

Commenting on the IIP data, industry body Ficci’s Secretary General A. Didar Singh said: “The performance of the index reflects depressed investment outlook for the industry and any such slowdown continuing for a longer period of time would have serious implications on the employment front.”

According to Singh, improvement in business environment, reduction in interest rates and implementation of GST (Goods and Services Tax) should become the priority for the government to reverse the negative trend.

“Announcements made in the budget and their quick implementation especially on the capital formation has the potential to generate additional growth,” said Singh.