India's Industrial Output Contracts 4% To 26-Month Low In October

The Index of Industrial Production contracted 4% in October compared with an expansion of 3.1% in September.

<div class="paragraphs"><p>(Source: Charlotte Harrison/Unsplash)</p></div>
(Source: Charlotte Harrison/Unsplash)

India's industrial activity contracted in October to its lowest level since September 2020 as manufacturing output fell.

The Index of Industrial Production contracted 4% in October compared with an expansion of 3.5% in September, according to data published on Monday by the Ministry of Statistics and Programme Implementation.

Industrial output fell 3.28% on a month-on-month basis.

Thirty economists polled by Bloomberg had forecast October IIP to fall 1%.

The magnitude of contraction is a bit of a surprise, especially in the manufacturing sector, said Sunil Sinha, principal economist at India Ratings.

The bigger surprise is the consumer durables sector, he said. The festival season reported strong sales of many consumer durable items, but the same is not reflected in the IIP numbers, he said. While consumer durables in the month of October 2022 witnessed their third successive month of contraction, consumer non-durables witnessed their fourth successive month of contraction. Is it due to the high base of last year?

"The answer is no," Sinha said. Both consumer durables and non-durables had done badly even last year in the month of October.

Another view of the dismal performance of the industrial sector can be gauged from the fact that except for infrastructure and primary goods, the output level of other use-based segments is still below the pre-covid level. The output levels of all the use-based segments in the past months exceeded the pre-Covid levels, though in different months; however, they could not hold it at that level or accelerate it, Sinha explained.

"It appears that weak domestic demand in combination with the waning of export demand is impacting industrial output growth."

Since IIP is a key input in quarterly GDP estimates, it imparts a downward bias in Q3FY23 GDP growth, according to Nikhil Gupta, chief economist at Motilal Oswal Financial Services.

CPI Inflation Eases To 11-Month Low Of 5.88% In November

Sectoral Estimates

  • Mining output rose 2.5% in October, compared to 5.15% in September.

  • Manufacturing output fell 5.6%, against a rise of 2.2% a month ago.

  • Electricity generation rose 1.2%, as opposed to the 11.61% seen in September.

Industrial output, as classified by the end use of goods, showed:

  • Primary goods output rose 2% in October, compared to a 9.46% rise in September.

  • Capital goods output declined by 2.3%, compared with a rise of 11.36% in the previous month.

  • Intermediate goods output fell 2.8%, compared with a rise of 1.75% a month ago.

  • Infrastructure and construction goods output rose 1%, against a rise of 7.72% in the previous print.

  • Consumer durables output dropped by 15.3%, a steeper decline than the 3.21% decline in September.

  • Consumer non-durables output fell 13.4%, significantly higher than the 6.31% fall during the previous month.