In the month of September, India’s industrial output contracted
the most in nearly eight years with weakness seen across most key segments. Of
the 23 sub-sectors within manufacturing, 17 recorded year-on-year contractions.
The Index of Industrial Production contracted by 4.3% in
September 2019 over last year compared to a contraction of 1.1% in August. The
contraction is much higher than the generally expected number of 2 to 3%
contraction. For records, this fall in industrial output is the deepest since
October 2011. As of now, the first half of the current fiscal has recorded an
average growth of 1.3% in the industrial production.
The capital goods segment, that reflects the growth in
investment activity, contracted 20% in September after a 21% fall in August.
The consumer durable production contracted for the fourth
straight month in September. The worst, consumer non-durable category also
recorded its first contraction in FY20 during the month of September.
The data has led to a spate of estimate downgrades of GDP growth
estimates. The consensus now appears veering towards 5% GDP growth in FY20 vs
previously estimated 6.5%. The lead indicators are pointing that despite
festival season, the growth in the month of October has also remained poor. The
consensus for FY21 GDP growth now appears close to 6%.
More notably, in some quarters the slowdown is being
acknowledged as "structural" and no longer "cyclical". As
per Devendra Kumar Pant, chief economist at India Ratings & Research
"The economy is presently facing a structural growth slowdown originating
from declining household savings rate, and low agricultural growth. Low
agricultural growth is feeding into low agricultural and non-agricultural wage
growth in rural areas, which is impacting rural demand adversely."
In the meantime two events worth taking a note have taken place:
Dr Manmohan Singh, former PM has been again appointed as member
of the Parliamentary standing committee on finance. He replaces the Congress party
representative Digvijay Singh.
As per media reports, the Chief Statistician of India Pravin
Srivastava has hinted that a decision to bring the base year for calculation of
real GDP growth forward to 2017-18 from the present 2011-12 may be taken soon.
This change in base may bring the real FY19 GDP growth number closer to 8%
against the present 5%.
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