IIP - January 2016

1. Mar 12, 2016
India’s IIP contracts 1.5% in January: Indian industrial output, measured by the Index of Industrial
Production (IIP), contracted for the third straight month to (-)1.5% in January 2016 as compared to
(-)1.2% (revised) in the previous month and 2.8% in January 2015. Consecutive decline over the last
three months has raised the question on the steadiness of industrial recovery. Manufacturing
sector is under pressure as the output further declined in January, while mining and electricity
output grew marginally in the reported month. During the first ten months of current fiscal,
industrial production remained flat at 2.7% compared to year ago period.
Poor performance of manufacturing dragged down IIP growth: Continuing the declining trend,
manufacturing sector output, which represent around 75.5% of IIP, declined (-)2.8% in January as
compared to (-)2.2% contraction in the previous month. While the decline in the output in
November was attributed to fewer working days due to Diwali and December to floods in the
Southern India, contraction in manufacturing activity during January came as a surprise, thus only
sluggish demand can be attributed to this decline. In terms of industries, 10 out of the 22 industry
groups in the manufacturing sector have shown negative growth during the month with industry
group ‘electrical machinery & apparatus’ showing the highest negative growth of (-)50.3%, while
industry group ‘office, accounting & computing machinery’ witnessed the highest positive growth
of 41.0% during the month under review. The poor performance by manufacturing sector to some
extent was offset by the electricity sector which performed well with a rise of 6.6% compared to
3.2% growth in December 2015. Meanwhile growth in mining also slowed down to 1.2% from 2.7%
in December owing to the sluggish output growth of coal, crude oil and natural gas in the month of
January. On cumulative basis, mining and manufacturing sectors showed improvement so far this
fiscal compared to year ago period, while electricity output declined to 4.7% compared to 9.4% in
April-January FY15 owing to weak demand from the country’s industrial sector.
Use based classification:
Massive drop in output of capital goods; consumer durables continue to show improvement: The
output of capital goods sector, a measure of investment activities in economy, contracted by
(-)20.4% in the reported month compared to (-)19.1% growth in the previous month. During April-
January FY16, the output of capital goods declined by (-)0.6% compared to 5.8% growth in year ago
period, indicating a weak investments scenario due to weak private sector sentiments. As per the
latest NCAER survey, business confidence index (BCI) of the private limited companies has fallen by
4.8% during Q3FY16 reflecting lower confidence level among private sector players. Only positive
point in this IIP figure was improving consumer durables sector which posted highest growth of
5.8%, though this growth was lower than 16.4% in the previous month. So far this fiscal, the output
of consumer durables sector grew by 11.6%, however this growth can be attributed to rising urban
demand positively impacted by the easing inflation and interest rate scenario in the country.
Outlook: IIP at (-)1.5% during January came lower than market expectations of (-)0.5%, signaling
that growth momentum in the economy remains vulnerable. Car sales declined (-)4.2% in February,
the second consecutive month of decline in the last 15 months indicating sluggish demand scenario.
As inflation is likely to remain soft and the government is strict to its fiscal consolidation path, the
RBI is expected to cut interest rate on or before its next monetary policy review on April 5, 2016 in
order to boost the demand in the economy.
IIP: Jan’16
Factory output in negative zone for 3rd straight month
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Monthly Economic Update
Research Analyst
Satish Kumar (022-6707 9913)
Satish.kumar@choiceindia.com
YoY Sectoral Performance Use-Based Classification
IIP Mining Manufacturing Electricity Basic Capital Intermediate Durables Non-Durables
Index Weight 100.0% 14.2% 75.5% 10.3% 45.7% 8.8% 15.7% 8.5% 21.4%
Jan'16 -1.5% 1.2% -2.8% 6.6% 1.8% -20.4% 2.7% 5.8% -3.1%
Dec'15 -1.2% 2.7% -2.2% 3.2% 0.5% -19.1% 1.3% 16.4% -3.0%
Jan'15 2.8% 1.8% 3.4% 3.3% 4.8% 12.4% 0.1% -5.7% 0.3%
Cumulative Growth
Apr-Jan FY16 2.7% 2.1% 2.5% 4.7% 3.2% -0.6% 2.0% 11.6% -1.2%
Apr-Jan FY15 2.7% 1.5% 1.9% 9.4% 7.7% 5.8% 1.6% -14.3% 2.1%
-5.0%
0.0%
5.0%
10.0%
15.0%
Industrial output growth in
negative zone
IIP
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Manufacturing Core Sector