Monthly industrial growth has contracted for the first time after June 2017 while yearly growth has recorded the lowest number in three years, government data has revealed.

This may translate into greater pressure on the Monetary Policy Committee (MPC) to cut rates for the third time this year, when it meets in June. Also, the RBI is expected to nudge the commercial banks to transmit its policy rate cuts. In the last two reviews, the rates were lowered by 50 basis points (100 basis points means 1 per cent), but the banks lowered their lending rates by just 10-20 bps.

Meanwhile, data released by the Central Statistics Office on Friday pointed to negative growth in the manufacturing sector affecting overall industrial production. The manufacturing sector is key to job creation and a contraction there is the evidence of poor status of job creation.

Factory output, as measured in terms of the Index of Industrial Production (IIP), contracted by 0.1 per cent in March 2019, against a growth of 5.3 per cent in March 2018. It’s the lowest since June 2017, when it contracted by 0.3 per cent.




Sequential growth

On a sequential basis, only the electricity sector grew faster in March 2019 (2.2 per cent, against 1.3 per cent in February).

IIP growth slowed to 3.6 per cent in FY19, against 4.4 per cent in FY18 and 4.6 per cent in FY17, its trajectory mirroring that of GDP growth. FY19 IIP growth was supported by infrastructure/construction goods and consumer durables.

However, on a quarterly basis, both these sectors also witnessed a growth slowdown; consumer durables even contracted in the fourth quarter of FY19. Capital goods contracted consecutively for three months in January-March 2019, repeating a trend seen in May-July 2017. On a quarterly basis, IIP growth has been the lowest in the new 2011-12 series, and the same is true for the manufacturing and electricity sectors.

“The declining growth of primary goods and deepening contraction of intermediate goods, and weakness in both investment and consumption activities, suggest very fragile industrial activities in the near term,” said Devendra Kumar Pant, Chief Economist with India Ratings.

Disappointing trend

Madan Sabnavis, Chief Economist at CARE Ratings, wondered whether the trend will get reversed and how soon it will happen. “The annual growth number of 3.6 per cent is lower than the 4.4 per cent of FY18, which is disappointing. This also means that there will be some downward revision in the GVA (gross value added) from manufacturing as the unorganised segment is represented by this number. On the whole, the difference may not be very significant, however,” he said.