Why industrial activity in India is in far worse shape than what headline IIP data show
Photo Credit: Reuters

For the second month in a row, India saw a decline in its factory output, which contracted 0.7% in August. While the mining sector was the worst hit, with a decline of 5.6%, manufacturing too was in the red.

Government data on the index of industrial production (IIP) released on Monday show that while production of capital goods declined sharply by more than 22%, that for consumer goods was up marginally by just over 1%.

This, effectively means that the government’s efforts at an economic revival have come to very little, with domestic demand not picking up, contrary to what the government has claimed. “"Good monsoon, pay commission, reasonable growth rate – domestic demand including rural demand has picked up," Finance Minister Arun Jaitley said in Washington, on the sidelines of the annual fall meeting of the World Bank and the International Monetary Fund.  “"I think, with the kind of economic activities and investments that we have planned over the next several years it (growth) is not likely to go down," Jaitley said.

Just last week, the Reserve Bank of India cut the benchmark interest rate by 25 basis points. In its bi-monthly monetary policy, the central bank said with a good monsoon and better sowing, the economy could witness growth as rural demand picks up.

Some of the commodities that brought down the overall index were insulated rubber cable, gems and jewellery, minerals, sugar machinery and rice, while those that contributed positively to the index were HR coils, alloy and stainless steel, mobile phones, fruit pulp and room air conditioners.

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