India's IIP Sees Marginal 0.1% Contraction in August
ECONOMY & POLICY

India's IIP Sees Marginal 0.1% Contraction in August

India's Index of Industrial Production (IIP) experienced a slight contraction of 0.1% in August 2024, down from a robust 4.7% growth in July, as revealed by the Ministry of Statistics. This marginal dip is primarily attributed to a decline in mining output, even as manufacturing production recorded a 1% increase during the same period.

Manufacturing Sector Insights In the manufacturing sector, several categories showed positive contributions, with basic metals manufacturing rising by 3.0%, electrical equipment by a notable 17.7%, and chemicals and chemical products increasing by 2.7% in August. These sectors played a crucial role in cushioning the overall IIP despite the challenges faced by the mining industry.

Mining Sector Challenges The mining sector reported a significant contraction of 4.3%, a downturn attributed to heavy rainfall in August, which disrupted operations. The Quick Estimates of IIP stood at 145.6, a slight decrease from 145.8 in August last year. The indices for industrial production across sectors were reported as follows: mining at 107.1, manufacturing at 145.9, and electricity at 212.3.

Further breakdowns of the indices revealed that primary goods had an index of 141.6, capital goods at 108.1, intermediate goods at 162.2, and infrastructure/construction goods at 180.2. Consumer durables and non-durables registered indices of 129.6 and 141.6, respectively.

Expert Insights and Future Expectations Credit rating agency ICRA noted that while the 0.1% contraction may seem concerning, it is not alarming. Aditi Nayar, ICRA's Chief Economist and Head of Research and Outreach, explained that this decline largely reflects temporary disruptions in mining output and electricity demand caused by excessive rainfall, along with an unfavorable base effect.

Looking ahead, ICRA anticipates that the year-on-year growth rate of the IIP will improve to between 3% and 5% in September. This optimistic forecast is based on expectations of a narrower contraction in electricity and mining output, a favorable base effect, and a significant increase in GST e-way bill growth from 12.9% in August to 18.5% in September, driven by pre-festive stocking.

Conclusion Despite the marginal contraction in August, the resilience shown by the manufacturing sector, alongside favorable forecasts for September, suggests a cautious optimism regarding India's industrial output. As the country navigates through the challenges posed by adverse weather conditions, the focus remains on enhancing production capacities and ensuring sustainable growth across all industrial sectors.

India's Index of Industrial Production (IIP) experienced a slight contraction of 0.1% in August 2024, down from a robust 4.7% growth in July, as revealed by the Ministry of Statistics. This marginal dip is primarily attributed to a decline in mining output, even as manufacturing production recorded a 1% increase during the same period. Manufacturing Sector Insights In the manufacturing sector, several categories showed positive contributions, with basic metals manufacturing rising by 3.0%, electrical equipment by a notable 17.7%, and chemicals and chemical products increasing by 2.7% in August. These sectors played a crucial role in cushioning the overall IIP despite the challenges faced by the mining industry. Mining Sector Challenges The mining sector reported a significant contraction of 4.3%, a downturn attributed to heavy rainfall in August, which disrupted operations. The Quick Estimates of IIP stood at 145.6, a slight decrease from 145.8 in August last year. The indices for industrial production across sectors were reported as follows: mining at 107.1, manufacturing at 145.9, and electricity at 212.3. Further breakdowns of the indices revealed that primary goods had an index of 141.6, capital goods at 108.1, intermediate goods at 162.2, and infrastructure/construction goods at 180.2. Consumer durables and non-durables registered indices of 129.6 and 141.6, respectively. Expert Insights and Future Expectations Credit rating agency ICRA noted that while the 0.1% contraction may seem concerning, it is not alarming. Aditi Nayar, ICRA's Chief Economist and Head of Research and Outreach, explained that this decline largely reflects temporary disruptions in mining output and electricity demand caused by excessive rainfall, along with an unfavorable base effect. Looking ahead, ICRA anticipates that the year-on-year growth rate of the IIP will improve to between 3% and 5% in September. This optimistic forecast is based on expectations of a narrower contraction in electricity and mining output, a favorable base effect, and a significant increase in GST e-way bill growth from 12.9% in August to 18.5% in September, driven by pre-festive stocking. Conclusion Despite the marginal contraction in August, the resilience shown by the manufacturing sector, alongside favorable forecasts for September, suggests a cautious optimism regarding India's industrial output. As the country navigates through the challenges posed by adverse weather conditions, the focus remains on enhancing production capacities and ensuring sustainable growth across all industrial sectors.

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