As Manufacturing Slows Down, India’s Factory Output Falls To 2 Per Cent

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  • Manufacturing output, which had risen by 4.5 per cent in May, took a hit in June, rising by only 1.2 per cent
  • Of the 23 sub-sectors within manufacturing, 15 recorded a year-on-year contraction
  • Intensifying contraction witnessed in the automobile sector
  • Manufacturing of electronic goods continued to see good growth
  • The capital goods segment saw contraction deepen at 6.5 per cent
  • Consumer durables also contracted, posting a decline of 5.5 per cent after rising by 0.22 per cent in May

Industrial output slowed to a 3-month low of 2 per cent in June compared to May’s seven-month high of 4.5 per cent, as capital goods production contracted and overall manufacturing growth slipped.

In a recent report, Business Standard reported that the index of industrial production (IIP) had last contracted in March and is expected to remain muted. According to economists, this dip comes as a result of weak exports, rural distress, credit constraints and uncertainty over the election outcome. Data released on Friday showed that the manufacturing output, which had risen by 4.5 per cent in May, took a hit in June, rising by only 1.2 per cent. 

Automobile goes down as electronic rises
Of the 23 sub-sectors within manufacturing, 15 recorded a year-on-year contraction. The IIP database showed intensifying contraction in the automobile sector. This resulted as an outcome of decreased production by 13 per cent in June, after a 6 per cent dip in May.

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On the other hand, manufacturing of electronic goods continued to see good growth. The sector witnessed a growth of 10 per cent in June. This came after the government pushed manufacturing in the sector through a series of benefits and the phased manufacturing programs aimed at reducing imports of electronics goods. It ultimately led to a sustained growth over the past one year.

The struggle of capital goods segment
The capital goods segment saw contraction deepen at 6.5 per cent, after the 1.6 per cent contraction in the previous month. Production in the category had risen by only 1.2 per cent in the first month of the current financial year, after two months of contraction.

Driven by machinery and heavy transport, capital goods production had been on a solid upward swing till October. But since then, the contraction has become the norm for every month, with the exception of two months.

Consumer goods feel the burn
Consumer durables also contracted, posting a decline of 5.5 per cent after rising by 0.22 per cent in May. Consumer goods production had been slowing for some time, reflective of inventories that have built up in the third quarter of 2018-19 when capacity utilisation also improved. But, with demand tapering off, production has slowed, economists had pointed out.

Devendra Kumar Pant, Chief Economist at India Ratings and Research informed the English Daily that on the face of sustained auto sector slowdown and agriculture distress, industrial sluggishness is unlikely to go away soon. He further opined that all industrial and economic revival hopes hinges on the agriculture sector’s performance, which after July 2019 rainfall has raised some hopes. 

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