India’s factory output contracted 1.1% in August as against a growth of 4.2% reported a month ago, thus signalling a deepening economic downturn. This may pave way for further monetary easing by the central bank for the sixth consecutive time in December.
Data released by the ministry of statistics showed manufacturing and electricity contracted 1.2% and 0.9%, respectively, while mining output remained almost flat growing at 0.1%.
Data released earlier this month by the industry department showed India’s eight infrastructure sectors constituting about 40% of Index of industrial production (IIP) contracted for the first time in more than four years in August by 0.5%.
The Monetary Policy Committee of the Reserve Bank of India earlier this month cut policy rates by 25 basis points and resolved to continue with an accommodative stance as long as it is necessary to revive growth. Realizing that the economic downturn is sharper than it earlier anticipated, it pared down its full year growth forecast to 6.1% in 2019-20 from 6.9% projected earlier.
Capacity utilization (CU) in the manufacturing sector, measured by the OBICUS (order books, inventory and capacity utilisation survey) of the RBI, declined to 73.6% in June quarter from 76.1% in the previous quarter. The RBI’s business assessment index (BAI) fell in September quarter due to a decline in new orders, contraction in production, lower capacity utilisation and fall in profit margins of the surveyed firms.