July IIP: Fall in consumption worrying; pull-back in production to persist, say experts

India's industrial output rose to 0.1 per cent in July, after falling steeply the previous month. It shrank 1.8 per cent in June, contracting for the third consecutive month in four months.

Industrial output accounts for a little over 15 per cent of the country’s gross domestic product (GDP). It was expected to have edged up 0.3 per cent on year on year basis in July, according to a median forecast of 30 economists.

Earlier a Reuters’ poll pointed to continuing weakness for the economy, which languished near a three-year low of 5.5 per cent annually in the first quarter of the current fiscal year, having slowed to almost a decade low in the previous quarter.


Here is what experts have to say about the weak data:


Aditi Nayar, Economist, ICRA

“Typically, we do see a lot of seasonal variations and July generally is lower than June. Having said that, we do feel strongly that is a pull-back in production levels and inventories is going to persist in the next couple of months. The push ahead of festival season is not what we are going to see over the next few months.

“One of the things that we can look forward to, is a push from govt on the infra side – like road, coal power etc. Those could see a turnaround once that happens. But if we are talking about private sector investment, there will be a certain time lag for a pick-up in sentiment.

“Now that monsoon deficiency has come down, there are lesser expectations of a hardening in food inflation. Secondly, with consumption slowing down, it should control inflation levels going forward. There doesn’t seem to be too much concern for RBI to take any action. But, we are expecting a rate cut in December.”


Dr. Brinda Jagirdar, General Manager & Head - Economic Research at State Bank of India

“The only thing positive and heave a sigh of relief is that the data wasn’t negative. But it isn’t anything to cheer about. Now, we need to shift the focus from the numbers to what is driving those numbers. The whole April-June data has been negative, driven by weak exports. But especially capital goods – that segment has been contracting for the last few months. Even the core sector has grown very slowly. This weakness in growth has been persistent, driven by weak manufacturing sector. So far it was driven by consumer side. But now it doesn’t seem to look well either. It is now hitting at expectations. There are actually 14 sectors that have negative growth.

“We all are expecting that things are going to change, some policy announcement that will turn around sentiment. Because of that, the last two quarters of the year could see better growth, depending on policy announcement.

“So far as liquidity is concerned, that remains confortable. But where growth is concerned, it isn’t. Inflation also needs to be looked at. With an ease in Monsoon, concerns in inflation has abated. But, growth is losing traction. That could perhaps prompt RBI to cut rates. But it is difficult to say what will happen. 


Leif Eskesen, Chief Economist for India & ASEAN at HSBC Global Research

“This is a little bit on the disappointing side. However, it is quite close to what was expected. What is clear is that manufacturing sector is hit by external headwinds. The sentiment has been hurt too, which is clearly reflected in the numbers. Going ahead, we need more policy support for a turnaround in sentiment.

“The consumer durable numbers to some extent, have to do with base effect. But as with what we saw in the GDP numbers, consumption growth numbers were disappointing. So, the consumption side is now beginning to slow somewhat more.

“However, I don’t expect this to impact the RBI in its policy. I think RBI will wait for better fiscal consolidation too. 



S Sandilya, SIAM, Chairman of Eicher Group

Overall the trend is not very comfortable. What the govt should do is boost demand. We see RBI has raised rates to curb demand to control inflation. But that should change now. Overall, we should now focus on demand improvement and not contraction. Economy has to grow and the focus should be on boosting economic growth. But I won’t be concerned about month on month fluctuations in IIP, despite the concerning trend over the last few months.

If you look at the commercial vehicle segment in the auto industry, medium and heavy CVs are going down. Light CVS are not too bad. It reflects a fall in GDP growth. 


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