Industrial output growth weakens to 3.2% in October
PremiumThe low base effect that boosted growth figures early this financial year waned during the past few months with industrial output growth dropping from 12% in August to 3.3% in September
NEW DELHI : India’s industrial output grew at a subdued 3.2% in October, casting doubts about the strength of the economic recovery in Asia’s third-largest economy.
The low base effect that boosted growth figures earlier this year waned during the past few months, with industrial output growth slowing from 12% in August to 3.3% in September.
In October, only the mining sector saw double-digit growth at 11.3%, while electricity and manufacturing sectors grew at low single digits, according to the Index of Industrial Production (IIP) data released by the ministry of statistics and programme implementation.
The 2% manufacturing output growth in October came despite robust GST collections of ₹1.3 trillion seen in the month. The worrying signals came from capital goods output, a proxy for investment activity, declining over the months and contracting 1.1% in October, while consumer durables output contracted for the second straight month in October to 6.1%.
Experts blamed supply-side issues such as chip shortages constraining the output of automobiles as the reason for the muted growth in industrial activity.
The fiscal second-quarter gross domestic product (GDP) figures released last month showed both government spending and household spending as a share of GDP declining marginally from a year earlier. These figures come at a time the central government is preparing the Union budget for FY23.
Experts said that some of the signals from the latest figures added heft to the view that the demand recovery is fragile.
“Even as the ongoing supply challenges in the auto sector persisted, the year-on-year performance of several other high-frequency indicators deteriorated in November 2021, including electricity demand, GST e-way bills, port cargo traffic, etc., suggesting that economic activity lost steam after the festive season ended, with a satiation of pent-up demand," said Aditi Nayar, chief economist at rating agency ICRA Ltd.
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While keeping key policy rates unchanged and retaining its 9.5% GDP growth forecast for this fiscal on Wednesday, the Reserve Bank of India said that the economic recovery interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable.
The central bank also said this underscored the vital importance of continued policy support.
RBI also flagged the emergence of Omicron, an elevated international energy and commodity prices and potential volatility in global financial markets due to a faster normalization of monetary policy in advanced economies as downside risks to its outlook.
The finance ministry front-loaded its fiscal transfers to states to help maintain the spending momentum. “Weak consumption and investment trend imply that the heavy lifting to take the economy out of sluggish growth has to be done by the government," said Devendra Kumar Pant, chief economist at India Ratings and Research.
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