Industrial production in India shrunk for the second consecutive month in December, pushed lower by manufacturing and mining, raising fresh doubts about the contradiction between the factory output number and the gross domestic product data released by the Central Statistics Office.
The GDP data for the current financial year had estimated manufacturing sector growth during October-December at an annual 12.6 per cent, but the latest numbers for the index of industrial production (IIP) point to a mere 0.9 per cent rise in the manufacturing sector during the quarter. The government, however, maintains that the two sets of numbers are based on different methods of calculation. While IIP is based on the production numbers filed by factories, the new GDP calculation uses the concept of gross value added. Senior economist at ICRA, Aditi Nayar pointed out that one of the factors behind the sharp spike in GDP-manufacturing numbers was the lower input costs. “The new base is closer to reality. Value added can grow faster than industrial production because of the difference in concepts - one is a volume indicator while the other is value-added, and both can diverge under certain circumstances,” said Crisil chief economist, DK Joshi. He also added that it was time to update the IIP so that it was more in line with the current production trends in the economy.
A survey, the Purchasing Managers' Index, released on January 1, had indicated that factory output had declined in December. The recent floods in Chennai may also have indicated that factory output had declined in December. “The floods in parts of southern India were a one-off factor that adversely impacted factory output in December 2015. Nevertheless, the persisting contraction in industrial production in December 2015, despite a normalisation in the number of working days, as well as the fairly widespread contraction in the sub-groups of manufacturing, are sources of concern,” ICRA's Nayar said.
“India's weak December industry figures add to the growing disconnect between the high-frequency data and the recent upbeat official GDP figures reported last week that showed the manufacturing sector growing 12.6% in real terms in the December quarter,” said Hanna Luchnikava, senior economist at risk analysis firm IHS Global Insight.
