Industrial output contracts after about 2-years at 0.1% in August

After a gap of nearly two years, India's industrial production turned negative as it contracted by 0.1% in August, mainly due to a decline in the mining and power generation sectors' output, in addition to an almost flat expansion in the manufacturing sector.

According to the data released by the National Statistical Office (NSO), factory output growth based on the Index of Industrial Production (IIP) has also been revised downwards for July to 4.7% from the earlier estimate of 4.8%.

"The IIP growth rate for the month of August 2024 is (-) 0.1%, which was 4.7% in the month of July 2024," NSO said in a release.

The IIP growth in August 2023 was 10.9%.

During April-August 2024-25, the IIP growth was 4.2% lower against 6.2% a year ago.

The growth rates in mining, manufacturing and electricity during August 2024 were (-) 4.3%, 0.1% and (-) 3.7%, respectively.

"It is likely that the decline in the growth of the mining sector is due to heavy rainfall in the month of August 2024," NSO said.

The last contraction in IIP was witnessed in October 2022, when the output index declined by 4.1%.

As per the use-based classification released by the NSO, the capital goods segment growth decelerated to 0.7% in August 2024 from 13.1% in the year-ago period.

Consumer non-durables output contracted by 4.5% against a growth of 9.9% in August 2023.

Consumer durable goods production growth too slowed to 5.2% during the reporting month compared to an expansion of 6% in August 2023.

According to the data, infrastructure/construction goods reported a growth of 1.9% in August 2024, down from a 15.7% expansion in the year-ago period.

The data also showed that the output of primary goods contracted by 2.6% in August against a growth of 12.4% a year earlier.

The expansion in the intermediate goods segment was 3%.

Icra Chief Economist Aditi Nayar said while unpalatable, the marginal contraction of 0.1% displayed by the IIP in August 2024 is not alarming, as it largely reflects the temporary dousing of mining output, electricity demand and retail footfalls by the heavier-than-normal rains, as well as an unfavourable base.

Nevertheless, in disaggregated terms, all the use-based categories reported a deterioration in August 2024 relative to the previous month, she said.

Overall, Icra anticipates the year-on-year growth in the IIP to improve to about 3-5% in September 2024 amid a likely narrower contraction in electricity and mining output, as well as a favourable base, and a sharp uptick in the growth in GST e-way bills, supported by pre-festive stocking.