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For the second consecutive time, after August, September IIP also showed a contraction by 4.3% and this really is not a shocker. Given the way in which most of the slowdown numbers had been coming in, this slip into the negative is what we are actually seeing on the ground. Major slowdown in manufacturing and consumer durable is the main culprit for this contraction.

If one may recollect, the core sector growth in September was dismal, contracting by 5.2% v/s -0.5% (MoM), dragged down mainly by coal miming which declined 20.5%.  As many as seven out of eight core industries saw contraction in output for September. Apart from coal, crude oil contracted by 5.4%, natural gas by 4.9%, output of refinery products  by -6.7%, cement by -2.1%, steel (-0.3%), and electricity (-3.7%) too declined. Fertiliser was the only sector which was in the green. When this was the cue, clearly it should not come as a surprise at all that IIP fell so sharply in September.

In terms of industries, seventeen out of the twenty three industry groups in the manufacturing sector have shown negative growth during the month of September 2019 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of motor vehicles, trailers and semitrailers’ has shown the highest negative growth of (-) 24.8 percent followed by (-) 23.6 percent in ‘Manufacture of furniture’ and (-) 22.0 percent in ‘Manufacture of fabricated metal products, except machinery and equipment’.

On the other hand, the industry group ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ has shown the highest positive growth of 15.5 percent followed by 9.2 percent in ‘Manufacture of basic metals.’

Today the manufacturing sector is in a situation where it simply does not have the pricing power; the demand situation is so bad, they simply cannot afford to hike prices. This loss of pricing power plus the slow demand is what is keeping the growth down.

Lower tax collections, Q2 GDP expected to be in the 4% range, slower demand, contracting exports and increasing Govt outgo is surely keeping the fiscal deficit way above the danger mark. This is most certainly a huge concern but unless this risk aversion psyche does not leave, nothing much will change. RBI too has been doing its bit to cut rates and enthuse demand but with banks not transmitting these rate cuts, it too is caught in a bind.

Well, being humans it is our nature to always be hopeful and let us think that the worst is behind us. H2FY20 looks a bit more optimistic mainly on the back of positive base effect. Kharif has been a bit hit so we hope that Rabi will be savior. Maybe not Q3 but Q4 is when we should ideally see the green shoots.

RBI’s MPC meet is scheduled for 5th Dec and most analysts are talking about a 50 bps rate cut. Let’s see where that goes….

As we see this dismal number, one quote of Guru Nanakji comes to mind, “That one plant should be sown and another be produced cannot happen; whatever seed is sown, a plant of that kind even comes forth.

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