Industrial production fell more than expected for the second month running in August, pulled down by a sharp decline in capital goods and muted mining activity because of the monsoon. Industrial output contracted 0.7% in August, less than the drop of 2.5% in July. There was a sharp 22.2% decline in capital goods.
In April-August, production declined 0.3% compared with 4.1% growth last year. Excluding 21.4% drop in capital goods in April-August, industrial output would have grown 2.9% in the period.
High volatility in Index of Industrial Production has resulted in rising criticism about certain items such as rubber insulated cables that distort numbers. Without this item, there would have been 2.37% growth in August.
Mining output fell 5.6% in August, manufacturing was down 0.3% and electricity generation was almost flat with a 0.1% increase from a year ago.
Urban consumption remained robust with consumer durables showing 2.3% growth compared with a 0.9% decline in rural oriented non-durables, resulting in overall consumer sector growth of 1.1%. This part of industrial production is expected to gain strength due to good monsoon.
Mining, cement output and road construction are expected to pick up following the monsoon.
The decreased pace of industrial activity was evident in seven of the 22 groups in the manufacturing sector in August, a marked improvement from July . CARE Ratings said the outlook for industrial output would still be constrained on account of the lack of pickup in private investment, although it expects government spending to boost growth. The rating company expects industrial growth of about 3% in the current financial year, suggesting major acceleration in activity in the remaining seven months.
Automobile sales have been good in September and though the purchasing managers' index shows some moderation from an August high, it is still in the expansion zone. In its latest estimate, the International Monetary Fund bumped up India's growth forecast for the current year to 7.6%. The government expects near 8% growth.