India's IIP expands by 1.8% in November 2019

India's IIP expands by 1.8% in November 2019

The Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 for November 2019 stands at 128.4, which is 1.8% higher as compared to the level in November 2018. The cumulative growth for the period April-November 2019 over the corresponding period of the previous year stands at 0.6%.

The Ministry of Statistics & Programme Implementation said on Friday, the Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for November 2019 stand at 112.5, 130.2 and 139.9 respectively, with the corresponding growth rates of 1.7%, 2.7% and (-) 5% as compared to November 2018. The cumulative growth in these three sectors during April-November 2019 over the corresponding period of 2018 has been (-) 0.1%, 0.9% and 0.8% respectively.

In terms of industries, thirteen out of the twenty-three industry groups (as per the 2-digit level of National Industrial Classification-2008) in the manufacturing sector have shown positive growth during November 2019 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ has shown the highest positive growth of 23.2% followed by 12.9% in ‘Manufacture of basic metals’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest negative growth of (-) 13.5% followed by (-) 12.6% in ‘Manufacture of motor vehicles, trailers and semi-trailers’.

As per Use-based classification, the growth rates in November 2019 over November 2018 are (-) 0.3% in Primary goods, (-) 8.6% in Capital goods, 17.1% in Intermediate goods and (-) 3.5% in Infrastructure/ Construction Goods.  The Consumer durables and Consumer non-durables have recorded growth of (-) 1.5% and 2%, respectively.

Aditi Nayar, Principal Economist, ICRA Ltd said, “As anticipated, a favourable base effect led to the IIP posting a turnaround to mild growth in November 2019, although the pace of the same trailed our expectations.  Disaggregated data provide mixed cues, with five of the six use-based categories, except intermediate goods, posting a sequentially improved performance in November 2019, even as four of the categories continued to report an unenthused yoy contraction in that month. Given the base effects and shifts in the festive calendar, it may be more appropriate to look at the average performance in October-November 2019. On average, the industrial performance remained lacklustre in October-November 2019, with a YoY decline of 1.2%, driven by all the use-based categories except intermediate goods and consumer nondurables. On a sectoral basis, the contraction in mining and electricity generation exerted a drag on the industrial performance in October-November 2019, even as manufacturing output recorded a marginal 0.1% yoy rise. The pace of improvement in the growth of consumer non-durables in November 2019 relative to the previous month was constrained by the considerable contraction in sugar output.

On average, consumer durables output has recorded a deep 10% contraction in the last four months, highlighting the underlying weakness in consumer sentiment toward big-ticket items. Fragrances and some steel products were the key drivers of the considerable expansion in output of intermediate goods in November 2019. In addition to the favourable base, some pickup in construction activity after the easing in rainfall is likely to have contributed to the narrowing contraction in output of infrastructure/construction goods in November 2019. The pace of capital spending of the Central and state governments would be a key driver of the trend in this category as well as capital goods in the remainder of FY2020.

Looking ahead, the available data suggests that the growth of mining output would strengthen in December 2019, while the pace of contraction of electricity generation would narrow, thereby supporting the overall performance of the IIP. However, a waning of the favourable base effect could result in manufacturing, as well as the overall IIP, reverting to a disappointing contraction in December 2019. The extent to which revenue considerations necessitate a cut in Government spending would be a key driver of growth in Q4FY20.

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