Manufacturing output, which makes up 77.6% of the IIP’s weight, decreased 5.6% in October compared to a 3.3% growth in the previous year.
Contrary to the annual trend in the festival month, the slowdown in exports and weak consumer demand caused a sharp decline in industrial output for October. According to data released by the main National Statistical Office (NSO) on the day Monday (December 12), factory output, as measured by the main Index of Industrial Production (IIP), fell to a current 26-month low of (-) 4% in October as a result of a decline in manufacturing and consumer goods.
IIP: Where and by how much has industrial output decreased?
Manufacturing output, which makes up 77.6% of the IIP’s weight, decreased 5.6% in October compared to a 3.3% growth in the previous year.
After a nine-month pause, capital goods output, a main proxy for investment sentiment, contracted by (-) 2.3%, indicating sluggish investment. Indicators of fast-moving consumer goods, consumer durables and non-durables output both remained negative at (-) 15.3% and (-) 13.4%, respectively, reflecting sluggish consumption demand, particularly in rural areas.
But why did manufacturing fall off?
India’s merchandise exports are being impacted by weaker global demand, which is then translating into a drop in manufacturing output. The pattern is consistent with a 4.3% decline in manufacturing output noted in the overall GDP data for the quarter of July to September.
Clothing, electrical equipment, textiles, pharmaceuticals, leather and related products, and other industries with a large export share and also production concentrated in the small and also medium enterprises (SMEs) sector, saw the greatest decline in industrial output for the month of October.
After growing for the previous 19 months, merchandise exports decreased by 12.1% in October. Imports of goods increased by 10% in October.
The interplay between the main organised corporate sector and also unorganised SME (small and medium enterprises) segments is a major factor in how well the manufacturing sector performs, with sagging export performance and SMEs’ ongoing struggles acting as headwinds.
The S&P Global India Manufacturing Purchasing Managers’ Index (PMI), which measures manufacturing activity, has, on the other hand, shown growth for 17 straight months. It increased to 55.7 in November from 55.3 in October, and is more often interpreted as a sign of improved performance by large manufacturing firms.
The most recent print run does it contradict the government and RBI forecasts?
The Reserve Bank of India stated last week that the external sector has been impacted by global headwinds while announcing a current rate hike of 35 basis points to 6.25 percent in an effort to control retail inflation.
Strong global headwinds have an impact on the external sector. Our exports of goods are being affected by the slowing global demand. The growth of imports of goods is also slowing down, according to RBI Governor Shaktikanta Das.
Another factor that is thought to be dampening industrial activity is the effect of rate increases by the RBI. Since the tightening cycle began in April 2022, the RBI has increased rates a total of 225 basis points.
The headline retail inflation rate dropped to 5.88 percent from 6.0%, which had been the RBI’s upper tolerance level for ten months. But core inflation—that is, the non-food and non-fuel portion—has remained high. The average core inflation rate for the three-month period ending in November was 6.03 percent, up from 5.85 percent in the prior period.
Chief Economic Advisor V Anantha Nageswaran had stated that the Indian economy is currently on track to grow 6.8–7% in the current fiscal and that the manufacturing sector will experience a rebound due to steady demand after the release of the main GDP data on November 30.
“Festival season was very active. Therefore, the third quarter of the fiscal year will see an increase in the numbers. Manufacturers were probably hesitant to increase inventory levels too much before the festival season because there was probably some caution. Manufacturing sector outcomes should also start to improve in the upcoming quarters now that they have experienced a successful holiday season and can see that overall demand is stable.
India’s November CPI Inflation October 2022 IIP Data According to government data, retail inflation dropped to 5.88% in November, while IIP shrank by 4% in October.
November 2022 India Inflation Rate, October IIP Growth Rate: Consumer Price Index (CPI) data show that retail inflation eased to 5.88% in November. Separately, the Index of Industrial Production (IIP), which measures factory output, showed a contraction of (-)4.0% in October.
November CPI Inflation Rate in India and IIP Growth October: Retail inflation in the nation, as determined by the Consumer Price Index (CPI), decreased from 6.77 percent in October to 5.88 percent last month, an 11-month low. Separately, according to two separate data released by the Ministry of Statistics & also Programme Implementation (MoSPI) on Monday, India’s factory output, as measured by the current Index of Industrial Production (IIP), decreased by (-)4.0% in October.
Since December 2021, the retail inflation print has decreased to its current level. For the first time in the year 2022, the CPI fell below the Reserve Bank of India’s (RBI) upper margin of 6%.
For a five-year period ending in March 2026, the government has ordered the central bank to keep retail inflation at 4% with a 2% margin on either side.
The central bank takes the CPI data into account when formulating its bimonthly monetary policy. The repo rate was raised last week by the Monetary Policy Committee (MPC) by 35 basis points (bps), bringing it to 6.25 percent. The MPC has increased the benchmark interest rate by 225 basis points so far this fiscal year in an effort to rein in the raging inflation.
RBI Governor Shaktikanta Das stated that RBI estimates the FY23 CPI at 6.7 percent when announcing the decisions of the MPC meeting last week. The CPI inflation forecast for the quarter of October to December (Q3) was increased from 6.5 to 6.6%, and the forecast for the quarter of January to March (Q4) was increased from 5.8 to 5.9 percent.
The Consumer Food Price Index (CFPI), which measures the inflation in the food basket as a whole, decreased month over month in November from 7.01% in October to 4.67%.
In November, vegetable prices fell by 8.08 percent year over year, while those for oils and fats fell by 0.63 percent and those for sugar and confectionery fell by 0.25 percent. In addition to these, spices increased by 19.52%, cereals and products increased by 12.96%, and milk and products increased by 8.16%. Products and pulses increased by 3.15 percent.
Along with food and drink, the fuel and light segment increased by 10.62%, clothing and footwear increased by 9.83%, and housing grew by a negligible 4.57%.
A separate set of data released by the MoSPI revealed that India’s factory output, which is measured in IIP, decreased by (-)4.0% on-year to 129.6 in October.
The information showed that the IIP had increased 4.2% in October 2021.
The data showed that the industrial output has increased by 5.3% so far in the fiscal year 2022–23 (April–October), as opposed to a jump of 20.5% in the same period last year.
The manufacturing industry played a major role in the IIP contraction in October. According to the MoSPI data, the manufacturing sector decreased (-)5.6% on a year-over-year basis to 128.7 in October, while the mining sector increased by 2.5% to 112.5 and the electricity sector increased by 1.2% to 169.3.
Manufacturing saw growth of 3.3% in October of last year. According to the data, the mining sector increased by 11.5% during the same month, while the electricity sector saw a 3.1% increase.
edited and proofread by nikita sharma
