Industrial output shrinking: fastest drop in 6 years

New Delhi: Contraction in manufacturing activity decelerated factory output growth to (-) 1.1 per cent in August 2019, as against a rise of 4.6 per cent reported in July. The Index had expanded by 4.8 per cent in August 2018.With this, the growth has hit the lowest level in the last 81 months. In fact, it is the worst performance since a 4.4% contraction in February 2013.

Industrial output is shrinking -- at its fastest rate in more than six years – despite a cut in the corporate tax rate and other policy measures designed to spur investment.

Subdued inflation and the economic slowdown had prompted the RBI to cut interest rates by a total of 135 basis points this year, including a 25-basis-point cut last week, making it the most aggressive central bank in Asia. At this rate, another rate cut can be expected in December, feel analysts.

Incidentally, tax collections are also falling due to weakness in the economy. Collections from GST fell to a 19-month low in September, while direct tax collection growth since the beginning of the current fiscal stands at 6% so far, below the required growth rate of 17%.

Experts point out that the policy measures announced by the government after the first quarter GDP growth of 5 per cent were essentially supply side interventions and are unlikely to boost demand. With no fiscal space available to the government, it is unlikely that the demand is going to bounce back soon. Seemingly, pre-stocking due to festive demand in September and October has not taken place. This does not augur well for the IIP numbers in days ahead and the growth rate is likely to remain erratically low.

The factory output growth declined in August on account of poor show by manufacturing, power generation and mining sectors, official data released on Friday showed. The manufacturing sector, which contributes over 77 per cent to the IIP, showed a decline of 1.2 per cent in output during August 2019, as against a growth of 5.2 per cent in the same month of last year. Electricity generation declined by 0.9 per cent, as against an expansion of 7.6 per cent in the year ago month while the growth in the mining sector was flat at 0.1 per cent. The grim outlook can be gauged from the fact that 15 out of 23 industry groups in the manufacturing sector have shown negative growth during August 2019, as compared to the corresponding month of the previous year.

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Free Press Journal