Industrial production declined by 4.3 percent in September. This was the second consecutive month of decline. This is its worst condition in the series which started in April 2012. It has become clear that the structural slowdown remains in the economy. The RBI may have to soften monetary policy next month as the signs of recovery worsen.
4.3% decline in industrial production
According to the Index of Industrial Production (IIP), industrial production fell by 4.3% in September to a near eight-year low in the series (base year 2004-05). There was a 5% reduction in IIP in October 2011 . Industrial production was up 4.6% in September 2018. The IIP was down 1.1% in August, although now the Statistics Department has revised it down to 1.4%.
Will there be an impact on GDP growth?
It seems that the economy may have slowed further in the second quarter of the current financial year. The GDP growth figures for the second quarter will be released on November 29. GDP growth was 5% in the June quarter. RBI had earlier said that the September quarter growth is expected to be 5.3%. IDFC First Bank's Chief Economist Indranil Pan said, "This is a weak phase of the economy." Sentiment is not strong. However, it is difficult to say that the worst phase of the economy has passed. According to IDFC First Bank, GDP growth in the second quarter is expected to be 4.9-5.1%. Earlier, RBI had lowered its growth forecast from 6.1 per cent to 6.1 per cent in FY 2019-20.
Economists fear that the growth picture for the entire financial year will be far more depressing. ICRA chief economist Aditi Nair said growth could come down to 4.7% for the current financial year due to sluggishness in the industrial sector. Nomura has lowered its GDP growth forecast for FY 2020 from 5.7% to 4.9%.
Axis Bank's Chief Economist Saugata Bhattacharya said, "Overall GDP growth is expected to be weak in the second quarter. It will take some time to recover strongly. Core sector growth declined by 5.2% in September. It was its worst in 14 years.
Moody's reduced sovereign rating
Last week, Moody's Investor Service lowered Outlook to negative on India's sovereign rating. He said that the economic slowdown could be structural rather than cyclical. This means that more policy changes will be needed to revive growth. Factory output growth was 1.3% in the September quarter, compared to 5.2% in the same period last fiscal.
CARE Ratings said that to achieve 4% growth in FY 2020, industrial output would need an average of 6-6.5% growth in the second half of the year.