What India’s Industrial Growth Looked Like In FY19

Industrial output grew at its slowest pace in three years in the fiscal ended March, indicating a slowdown in the economy.

The Index of Industrial Production grew 3.6 percent in 2018-19 compared with 4.42 percent a year ago, according to data released by the Ministry of Statistics and Programme Implementation.

Declining growth in private consumption as reflected in drop in sales of automobiles, tepid increase in fixed investment and muted exports caused a “slight” slowdown in the economy in March, the Finance Ministry had said in its monthly economic report for the month. Weak rural demand and tepid credit flows to small businesses could mean that the slowdown will persist in the next three to six months.

The trajectory of IIP growth mirrors that of GDP growth, according to Devendra Pant, chief economist at India Ratings and Research. “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 near term.”

Manufacturing, which contributes over three-fourths of total industrial output, fell to a three-year low in 2018-19. That’s because of slower growth in manufacturing of coke and refined petroleum products, pharmaceuticals, medicinal, chemical, botanical products, basic metals, machinery and equipment.

• Manufacturing output growth fell to 3.5 percent for the full year from 4.6 percent in 2017-18.
• Mining grew 2.9 percent compared to 2.3 percent in the previous financial year.
• Electricity output growth was at 5.2 percent against 5.4 percent in 2017-18.
• Manufacture of motor vehicles and other transport equipment moderated as vehicle sales slowed down since festival season last year.

“On a quarterly basis, IIP growth has been the lowest in new 2011-12 series, the same is true for manufacturing and electricity sector,” Pant said.

Also, end-use classification of output reflected weak demand conditions as manufacturing of consumer durables contracted in March after declining through the year. Capital and intermediate goods contracted for third straight month.

“Continued contraction in capital goods and intermediate goods is worrisome as it is indicative of the investment activity in the economy,” Madan Sabnavis and Manisha Sachdeva, economists at CARE Ratings, said in a research note. Private investment has been down, and they said the driving force is still the government. “Uncertainties over general elections could be cited as one of the major reasons of lower activity in these segments.”

Consumer spending will increase only gradually and hence there would be a tendency for growth to be subdued in the first few months of FY20, they said. “The important part will be government expenditure and the decision taken on capex before the main budget is introduced would need attention.”