An adverse base effect and the slowdown in economic activity led to a year-on-year (YoY) contraction in the industrial production index in August for the first time in 22 months, according to data released by the National Statistics Office (NSO) on Friday. .
The data showed that industrial production fell 0.1 percent in August, compared to growth of 4.7 percent in July, due to the contraction in mining production (-4.2 percent) and energy production (-3 .7 percent), while industrial production growth slowed sharply. at 1% per month.
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Previously, industrial production contracted in October 2022 (-4.1%).
Overall, during April-August 2024, IIP grew by 4.2 percent, compared to 6.2 percent in the same period last year.
Experts attributed the drop in industrial production in August to above-normal rainfall, which reduced production in sectors such as mining, energy and infrastructure. Furthermore, distorted demand continues to affect consumption.
CRISIL chief economist Dharmakirti Joshi said relatively heavy rains in August may have hampered production in key industrial sectors, while weaker demand also reflected a slowdown in sectors such as consumer durables and continued contraction in non-durable consumer goods.
“The impact of a healthy monsoon on rural demand is expected to begin in the second half of this financial year, which will support consumption,” he added.
The data shows that 11 of the 23 IIP manufacturing sectors, including food, beverages, paper, coke and refined products, recorded a contraction in production in August.
Meanwhile, production in consumption-based categories such as primary goods (-2.6 percent) and non-durable consumer goods (-4.5 percent) declined in August, while categories such as capital goods (0.7 percent) percent) and intermediate goods (3 percent) decreased. , infrastructure goods (1.9%) and consumer durables (5.2%) recorded a decline in growth in the month.
Rajni Sinha, chief economist at CARE Ratings, said that although the monsoon has been favorable, its distribution continues to be a problem.
“Demand for personal household consumption is expected to increase during the festive season early this year. External demand remained weak, evidenced by two consecutive months of contraction in raw material exports in July and August. Overall, a widespread improvement in consumption and private capital expenditure is important to boost global industrial activity,” he added.
Aditi Nair, chief economist at ICRA Ratings, said available high-frequency indicators indicated a mixed trend in the growth of economic activity in September, partly due to weak performance in some mobility-related indicators, including vehicle registrations and consumption. of gasoline. From mid-September 2024 to Shradh time.
“Overall, ICRA expects IIP growth to increase to 3-5 percent in September amid a possible contraction in power and mining production as well as a favorable base and a sharp increase in GST e.g. Transport bills are covered by pre-festival capacity. Notably, base effects will remain insidious over the next few months, which could cloud the analysis of how economic growth is evolving,” he said.
