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Growth Pangs: Factory output loses steam in October

Capital items output contracted 1.1% in October from a yr earlier than, towards an increase of two.4% within the earlier month. Consumer durables output shrank 6.1%, whereas non-durables rose simply 0.5%.

The index of commercial manufacturing (IIP) grew 3.2% in October, in contrast with 3.3% in September and 12% in August, as a purported rise in demand within the build-up to Diwali was blunted by provide bottlenecks in key sectors, together with vehicles. Of course, a comparatively unfavourable base (IIP had risen 4.5% in October 2020) additionally weighed down development.

In truth, the IIP efficiency has hardly ever been encouraging during the last two-and-half-years; properly earlier than the pandemic hit the nation, industrial manufacturing had been stagnating. Strong development charges in a few of the latest months have been largely attributable to deep contractions attributable to the pandemic within the respective year-ago months.

Given that capital items – a gauge for funding – and shopper durables contracted from a yr earlier than (albeit on excessive base) in October, forward of the important thing competition season, a broad-based and sustained industrial restoration is clearly but to take root. In truth, durables output shrank on the quickest tempo in 14 months. Moreover, a sub-1% rise in shopper non-durables for a second straight month in October reinforces the fears {that a} restoration in non-public consumption stays tentative as but.

Elevated uncooked enter costs and the restricted means of producers to move on the prices to customers could have discouraged some companies from scaling up manufacturing as properly, some analysts reckon. On a month-on-month foundation, nevertheless, industrial manufacturing grew 4.3% in October.

Capital items output contracted 1.1% in October from a yr earlier than, towards an increase of two.4% within the earlier month. Consumer durables output shrank 6.1%, whereas non-durables rose simply 0.5%.

Barring mining, which grew 11.4% in October, the expansion of producing and electrical energy remained decrease than anticipated at 2% and three.1%, respectively.

Aditi Nayar, chief economist at Icra, identified that even when provide challenges within the auto sector endured, the efficiency of a number of different excessive frequency indicators – together with electrical energy demand, GST e-way payments and port cargo visitors – deteriorated in November from a yr earlier than. This means that “economic activity lost steam after the festive season ended, with a satiation of pent-up demand”. “Accordingly, the IIP growth may print sub-3% in the just-concluded month, in spite of the low base (-1.6% in November 2020),” Nayar stated.

E-way invoice era dropped to its lowest in 5 months in November, indicating a fragile consumption story. However, the manufacturing PMI scaled a 10-month excessive in November, providing some consolation to policymakers.

Predicting a “weak set of IIP number” in the remainder of FY22, DK Pant, chief economist at India Ratings, stated: “Weak (private) consumption and investment trends imply that the heavy lifting to take the economy out of sluggish growth has to be done by the government.”

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