Industrial Production for August 2019

IIP growth nosedived to six year low of (-)1.1% YoY in August 2019.

After witnessing some respite in July 2019, the index of industrial production (IIP) registered its worst slump in six years in August 2019. IIP contracted by 1.1% YoY in August 2019 as compared to an expansion of 4.3% YoY in the previous month. The sharp decline has primarily led by the shrinkage in the production of capital goods and consumer durable goods. The deceleration in IIP is in contrast with the market expectation of 1.8% (Reuters poll). However, it is in line with the growth in eight core industrial output, which contracted by 0.5% YoY in August.

The manufacturing sector, which contracted by 1.2% YoY witnessed its worst-ever performance in 5 years. The previous low recorded in the manufacturing segment was a contraction of 1.8% YoY in October 2014. 15 out of 23 groups in manufacturing registered negative growth. Of the 15 groups, the vehicle industry has seen the highest contraction of 23% YoY followed by the production of machinery and equipment (-21.7% YoY).

As per the use-based classification, the worst performance came from the capital goods segment, which witnessed a massive contraction of 21% YoY in August. The growth in this category has remained in the negative zone for straight 10-months. Even consumer durables, which contracted by 9.1% YoY in August, have stayed in the negative territory for three months in a row.

The massive decline in industrial output growth emphasizes the current slowdown in the economy, and it may continue in the second quarter of the current fiscal. Recently RBI revised its GDP projection downwards for the current fiscal to 6.1% from its previous estimate of 6.9%. We believe there will be a minor pickup in the consumption demand owing to the festive season in the upcoming months but the growth worries may weigh upon. Along with this, the recent reforms announced by the government may also lead to some improvement in industrial output.