Nov factory output hits 6-mo low

The country’s index of industrial production (IIP) in November hit a six-month low, reaffirming that slowdown in the manufacturing sector is persistent. The IIP declined 2.1% on-year in November, having fallen 1.6% in October.

The low figure comes as a negative surprise as consensus estimates had pegged it at around 0.6%.

The manufacturing sector, which makes up 75.52% of the IIP, reported drastic contraction of 3.5% on-year and a negative growth of 5% on sequential basis. The sequential dip in manufacturing is the worst in the last eight months.

The sharp decline in production of consumer goods that reported an 8.7% decline in November weighed on the manufacturing sector growth.

Experts believe the lower domestic demand both from rural and urban population, along with higher inventory, would have led to the drastic fall in consumer goods segment.

Shubhada Rao, chief economist at YES Bank, said the IIP data confirm that the domestic demand environment has not yet seen sharp improvement. “The rural economy revival has not yet taken shape despite good monsoons and this has led to lower consumption demand.”

Among other sectors, mining sector (14.12% weighting in IIP) reported 1% growth in November after showing a de-growth of 3.2% in October. Electricity production (10% of IIP) grew 6.3% on-year.

Going ahead, experts believe that the IIP for the whole year may remain muted and this, in turn, may prevent the RBI from raising rates.

“We expect the RBI to hold rates during its January 28 policy review,” said Bhupali Gursale, economist, Angel Broking. Rao, too, said the RBI may maintian a status quo.