Jan factory output dips 1.5% in 3rd straight monthly fall

Showing sluggishness in the economy, industrial production contracted by 1.5 per cent in January — its third straight month of drop — due to poor performance of manufacturing sector and lower offtake of capital goods. Factory output measured in terms of Index of Industrial Production (IIP) had declined by 3.4 per cent in November and 1.2 per cent in December, according to the data released by Central Statistics Office (CSO). The index had registered a growth of 2.8 per cent in January last year, it said. During April-January, industrial output growth remained flat at 2.7 compared to the year ago period.  

The decline in January has been primarily on account of a massive drop in output of capital goods, which showed a contraction of 20.4 per cent in January compared to a growth of 12.4 per cent in the same month a year ago. The manufacturing sector, which accounts for over 75 per cent of the index, declined by 2.8 per cent against a growth of 3.4 per cent in January 2015. 

However, the mining sector showed an improvement, logging a growth of 1.2 per cent in the month as against a contraction of 1.8 per cent in same month a year ago. Power generation showed acceleration, growing by 6.6 per cent as against 3.3 per cent growth year ago. As per used based classification, basic goods reported a marginal increase of 1.8 per cent as against a growth of 4.8 last year. The consumer goods output remained stagnant as against 1.9 per cent contraction. Consumer durables, however, showed growth of 5.8 per cent in January as against a contraction of 5.7 per cent during the same month last fiscal.

However, the consumer non-durable segment showed a contraction of 3.1 per cent in January as against a growth of 0.3 per cent in the corresponding month. In terms of industries, 10 out of the 22 industry groups in the manufacturing sector showed negative growth during January.  However, domestic rating agency Crisil said that the country’s GDP can grow by 7.9 per cent next fiscal if the monsoon is normal and government implements the reform measures announced so far.  The growth forecast, highest by any house and even above the government’s own estimate of 7-7.75 per cent, has been arrived assuming a faster growth in agriculture, 

Crisil Chief Economist Dharmakirti Joshi said in a concall on Friday. The country has faced weather shocks for three consecutive years, including two years of deficient rains in 2014 and 2015, and a normal monsoon season this year can lead to a 4 per cent growth in agriculture on lower base effect, he explained.  

Even though he flagged concerns on the banking front, Joshi said implementation of reforms should help the economy achieve higher growth and termed 2016-17 as the “year of reckoning” which has the potential to illustrate the path which the economy can take.

Joshi said that oil and commodity prices are expected to remain soft, which will ensure that crucial macroeconomic indicators like fiscal deficit and inflation are as per expectations. He termed the journey till now as a “modest recovery” helped by good luck and strong policy push, but highlighted the need to implement reforms faster. He also said the pick-up in private investment cycle should begin from the second half of the next fiscal year.

Welcoming the Budget as one with realistic growth and revenue targets, he said achievement of the divestment target, which the government has trailed in the past, will be keenly watched. Calling the banking sector as the “hardest place”, Joshi said the overall weak assets, including gross NPAs and assets that are likely to slip into NPAs, will rise to 8.9 per cent or Rs 8 trillion, with state-run banks bleeding the most.