Factory output contracts 2.1% in November

K. R. Srivats
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A poor show on the manufacturing front led factory output to a second straight month of contraction in November 2013 at 2.1 per cent.

The weakness in manufacturing, which contracted sharper than expected at 3.5 per cent, came primarily on account of a 21.5 per cent decline in consumer durables output.

The November 2013 factory output is at a six-month low, indicating that the RBI will pause on policy rates in its February meeting on the back of expected softening in headline and retail inflation numbers, say economy watchers.

The previous low in Index of Industrial Production (IIP) was recorded at May 2013 with a contraction of 2.5 per cent.

After a long gap, mining recorded a growth, at 1 per cent in November. Electricity generation saw a spike of 6.3 per cent for the month under review.

Factory output had contracted 1 per cent in November 2012.

Meanwhile, the IIP contraction for October 2013 has been revised to 1.57 per cent from 1.8 per cent earlier.

In the use-based classification, capital goods output for November 2013 grew 0.3 per cent against a contraction of 8.5 per cent in the corresponding month last year.

Consumer goods output declined 8.7 per cent (-0.3 per cent).

The IIP data for November 2013 was disappointing, but most of the negativity was concentrated around consumer durables, said Upasna Bharadwaj, Chief Economist, ING Vysya Bank.

“Rest of the components have shown stability. Mining and electricity have done well. This November performance is not a broad-based weakness in IIP. If one were to exclude consumer durables, the IIP would have actually grown 1.5 per cent as against contraction of reported 2.1 per cent”, she told Business Line.

CII view

Confederation of Indian Industry (CII) Director General Chandrajit Banerjee said the November IIP is extremely worrisome.

“What’s also causing concern is the performance of the manufacturing sector, indicating that new investments are still not happening. The low base of last year also magnifies the concerns”.

However, going forward, it is hoped that a spate of good news, notably the rebound of the economies of the US and Europe, an upturn in exports, a good monsoon and pragmatic government policies, especially on fast-tracking projects, would help industrial production rebound.

(This article was published on January 10, 2014)
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