Factory Output Nosedives, Contracts 0.1 Per Cent In June

The government data showed industrial output in the first three months of the year (April-June) growing 2 per cent over the corresponding period of the previous year.

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Factory Output Nosedives, Contracts 0.1 Per Cent In June

The June numbers are lower than what the market estimated.

Highlights

  1. Economists had forecast 0.6 per cent growth in output
  2. Industrial output grew 2% In April-June quarter
  3. GDP growth slowed to 6.1 per cent in the March quarter
Factory output contracted 0.1 per cent in June, partly on account of retailers reducing stocks before the implementation of GST or goods and services tax. The industrial output had increased a revised 2.8 per cent in May. The June numbers are lower than what the market estimated. Economists surveyed by Reuters had forecast 0.6 per cent growth in output in June. "The unfavourable base effect, the reduction in inventories ahead of the transition to the GST, and slide in growth of non-oil exports culminated in a marginal contraction of 0.1% in the IIP in June 2017," said Aditi Nayar, principal economist at ICRA.

The government data released today showed industrial output in the first three months of the year (April-June) growing 2 per cent over the corresponding period of the previous year. Fifteen out of the 23 industry groups in the manufacturing sector showed a negative growth during the month of June 2017 as compared to the corresponding month of the previous year, the Ministry of Statistics & Programme Implementation said.

Production in the consumer durables sector recorded negative growth of (-) 2.1 per cent while that in the capital goods sector contracted 6.8 per cent.

"The contraction in capital goods output for the third consecutive month highlights the continuing sluggishness in private sector investment activity," Ms Nayar of ICRA said.

The industrial output figures for July would also be closely watched. The country moved to the GST or goods and services regime from July 1. Private business surveys showed both services and manufacturing contracting sharply in July, the month the GST was launched.

The government today called for monetary easing as it flagged risks to economic growth, citing a series of disinflationary impulses weighing on Asia's third-largest economy. In its mid-year economic survey, the finance ministry said "tighter" monetary policy meant that real interest rates in India were substantially higher than in comparable emerging economies, further clouding the economic outlook. Faster monetary easing, the ministry argued, would help deleverage corporate balance sheets and restore banks' profits, helping the economy realise its full potential.

While the government retained an official growth forecast of 6.75 per cent to 7.5 per cent for the fiscal year to March 2018, the report highlighted a stronger rupee, deepening farm distress and a disruption in business activity following the launch of GST, as headwinds.

"The forecast for GDP reflects the greater risks to the downside," Chief Economic Adviser Arvind Subramanian wrote in the report.

Growth slowed to 6.1 per cent in the March quarter, its lowest in more than two years, after demonetisation hit economic activity.

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