Yet another set of economic data from the National Statistical Office has reaffirmed both the depth and all-pervasive width of the ongoing economic slowdown. The latest index of industrial production (IIP) estimates from the NSO show that output shrank by 4.3% in September , with all three component sectors in the index — manufacturing, mining and electricity — posting contractions. This was the sharpest contraction in output since at least April 2012, before which the data was referenced to a different base year. Also, five of the six categories on the IIP’s use-based classification of goods registered declines, with only intermediate goods bucking the trend. Disconcertingly, the prolonged slump in the output of capital goods, a proxy for investment activity by businesses, extended into a ninth straight month as production contracted by about 21% for the second month in a row. Consumer durables also posted a fourth straight contraction, with the 9.9% decline appearing in stark contrast to September 2018’s 5.4% growth. Clearly, manufacturers of white goods are struggling to find demand for their wares and the sliding production points to an absence of the traditional festival-eve restocking bump. The second successive shrinkage in infrastructure and construction goods — it shrank 6.4% — reflects the challenges besetting the two eponymous primary sectors. Here, the Centre’s announcement of a funding initiative to help stalled housing projects ought to provide some fillip in the coming months. But a stretched fiscal situation is likely to keep government spending on other big-ticket infrastructure projects muted for the foreseeable future.
From an industry perspective, 17 of the 23 industry groups that comprise the manufacturing sector contracted. And leading the slump, predictably, was the motor vehicles industry, which posted a 25% contraction. If the wholesale data from the Society of Indian Automobile Manufacturers (SIAM) is any indicator of trends for this industry, there is certainly more pain ahead as overall shipments fell almost 13% from a year earlier in October. Demand for newly introduced utility vehicles was the saving grace, as it propelled a marginal uptick in passenger vehicle deliveries. SIAM’s figures on commercial vehicles, which show a 23% year-on-year decline, particularly underscore the demand vacuum in the rural hinterland and the wariness on the part of fleet operators to invest in new haulage capacity. With manufacturing having a weight of almost 78% in the IIP, the latest report from IHS Markit gives little room for optimism. The survey-based Purchasing Managers’ Index revealed continuing manufacturing sector weakness in October as weakening demand hurt new orders and business sentiment. In fact, business confidence had slipped last month to its lowest level in more than two-and-a-half years, according to the private economic research group. All signs now point to the central bank cutting interest rates again at its next meeting, in order to help spur a revival.
