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IIP shrinks by 1.1% in August; manufacturing, electricity contract

The share of “manufacture of transport equipment” was 12.0 per cent in manufacturing GVA.

The industrial production contracted in August 2019, on account of weakness in the manufacturing sector. The index of industrial production shrank by 1.1 per cent in August, which surged to 4.3 per cent in the previous month, the government data showed.  The IIP growth rate for the mining, manufacturing and electricity sectors stood at 0.1 per cent, – 1.2 per cent and – 0.9 per cent as compared to the corresponding period of the last year. 

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A slowdown in the automotive industry is also a major reason behind the slow growth of industrial growth as it forms a significant portion of the overall manufacturing sector. The share of “manufacture of transport equipment” was 12.0 per cent in manufacturing gross value added (GVA) and 2.1 per cent in overall GVA in 2017-18, going by the figures provided by the RBI. 

Meanwhile, the credit growth to the industry sector has also dropped in the last four months after accelerating continuously between August 2018 and April 2019, according to RBI.The credit is required by the industries to run the operation, expansion and to work at the fullest of its capacity. However, at the aggregate level, capacity utilisation declined to 73.6 per cent in Q1 FY20 from 76.1 percent in Q4 FY19. A decrease in the capacity utilisation indicates that the industries are producing less output than the previous level. 

GVA growth of the industry, which remained 6.1 per in FY17 and 6.2 per cent in FY18, dropped steeply to a mere 1.7 per cent in the first quarter of the current fiscal year. Highlighting the importance of the industries, the RBI said in a recent report, “The downturn in the automobile sector in India, which could be attributed to several regulatory and institutional factors, was accentuated by a slowdown in demand. This has drawn considerable attention in view of the industry’s role in economic activity.”

Source: Financial Express