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India’s February factory output falls 1.2% on slack consumer demand

During April-February, the IIP was up just 0.4% as compared with 2.6% in the same period last year, as manufacturing was down 0.3% while mining was up 1.6% and electricity 4.6%.

business Updated: Apr 12, 2017 20:41 IST
Raj Kumar Ray
IIP

(Reuters photo)

India’s industrial output fell 1.2% in February as compared to a 2.7% growth in January, as consumer demand remained subdued after the demonetisation drive and investment activity crawled.

Economists have warned of a sharp decline in industrial activity especially those dependent on cash, which in turn may have led to income and job losses.

Economic activity could not recover fast as RBI tapered the remonetisation pace since February. The increase in currency being circulated was 5.9% week-on-week in January 13. It slowed to 4.6% in February 10, and further to 4% on March 10.

On Wednesday, government data showed the index of industrial production (IIP) fell as manufacturing output was down 2% while mining was up 3.3% and electricity 0.3%.

During April-February, the IIP was up just 0.4% as compared with 2.6% in the same period last year, as manufacturing was down 0.3% while mining was up 1.6% and electricity 4.6%.

The demonetisation drive unleashed on November 8, crimped consumption and crippled economic activity in a cash dependent country.

Analysts expect better days ahead as the government steps up spending in infrastructure. The purchasing managers index, a gauge for factory orders and output, jumped to a 5-month high.

“The outlook for steel sector is bright as the government is giving push to infrastructure development particularly railways, road and defence, coupled with smart cities projects,” said Soumya Kanti Ghosh, the group chief economic adviser at State Bank of India.

The impact of demonetisation on the economy could be gauged by the fall in capital goods output by 3.4% in February and consumer goods by 5.6%. Within the consumer goods, the durables were marginally down by 0.9% while non-durables fell 8.6%.

The RBI also kept policy lending rate unchanged during the demonetisation phase and at the April policy review but hiked the reverse repo to suck out extra cash from banks.

Between January 2015 and March 2017, the RBI has lower rates by 175 bps while the government has stepped up spending and speeded up reforms to pump prime the economy amid a feeble global recovery.

CSO has projected economic growth is projected at 7.1% for 2016-17 as compared with 7.9% in 2015-16, fearing a decline in consumption and investment activity due to demonetisation.