A more than feared contraction in industrial production growth in November over the previous month could force Prime Minister Narendra Modi's government to lower the gross domestic product (GDP) projection for FY19, a report says.
The Index of Industrial Production (IIP) that surged 8.4 per cent in October slowed down significantly in November, exceeding the fears. IIP growth was recorded at just 0.5 per cent. Consensus estimates for growth, which had kept the base effect in mind, stood at 3.5 per cent.
The simultaneous contraction in the production growth in manufacturing, consumer durables and capital goods was more worrying, the report in Mint said.
This signals weakness in both consumption and investments and does not bode well for India's GDP growth, according to it.
"Consumption growth has slowed down recently, especially as the farm sector concerns have intensified," a January 11 report of Kotak Institutional Equities said. "Private sector investment is unlikely to see a sharp recovery given low capacity utilization across sectors, still-weak balance sheets and limited scope for the private sector to invest in the basic infrastructure sectors."
IIP is used as an input for gross value-added computation and its subdued performance could translate into weaker GDP growth in the quarters ahead, the report said. This raises risks of a further downward revision of GDP estimates 2018-19 fiscal.
The Central Statistics Office recently released the first advance estimates for the current fiscal projecting an overall economic growth of 7.2 per cent for the year ending March 31, 2019. This figure, it is pointed out, is lower than the 7.4 per cent estimated by the Reserve Bank of India.
On Monday, the benchmark BSE Sensex ended over 150 points lower as foreign investors reacted to the disappointing IIP data and other Asian markets' weakness.
The 30-share index settled 156 points, or 0.43 per cent, down at 35,853, while the NSE Nifty 50 fell 57 points, or 0.53 per cent, to finish at 10,737.
Manufacturing, bank, tech and power stocks led the fall. The major losers were L&T, IndusInd Bank, PowerGrid, NTPC, TCS, ICICI Bank, Axis Bank, Hero MotoCorp, Bharti Airtel and SBI.
Experts said that the overall investor sentiment was weak after the government released the industrial output growth numbers, which dropped to a 17-month low of 0.5 per cent in November on account of contraction in the manufacturing sector, particularly consumer and capital goods.
