Demonetisation Impact: IIP contracts to 4-month low of 0.4 per cent in Dec, 2016

Impacted by demonetisation, industrial production contracted to four-month low of 0.4 per cent in December with consumer durables output plummeting by over 10 per cent and an overall decline in manufacturing.

The decline in factory output comes over contraction of 0.9 per cent in December 2015. It reflect deterioration in the manufacturing sector on account of cash crunch following scrapping of the Rs 500/1000 notes on November 8, 2016.

The industrial output was 5.7 per cent in November and did not capture the impact of demonetisation.

Factory output measured in terms of Index of Industrial Production (IIP) in December declined on account of 2 per cent contraction in manufacturing sector, as against 1.9 per cent decline a year ago.

According to data released by the Central Statistics Office on Friday, the previous low was a contraction of 0.7 per cent in August.

During the April-December period of the current fiscal, IIP growth remained almost flat at 0.3 per cent compared to 3.2 per cent growth in the nine month period of 2015-16.

Output of consumer durables segment - TVs, refrigerators and washing machines - declined by 10.3 per cent during the month under review from robust growth of 16.6 per cent reflecting the impact of currency crunch.

The consumer non-durable mainly including FMCG items too contracted by 5 per cent in December, as against a contraction of 2.7 per cent year ago.

Overall consumer goods output showed a contraction of 6.8 per cent compared to growth of 3.2 per cent in December 2015.Capital goods segment, barometer of investments, declined by 3 per cent as against 18.6 per cent decline in December 2015.

As per use-based classification, the growth rates are 5.3 per cent in Basic goods and (-)1.2 per cent in Intermediate goods.

However, the power generation showed a growth of 6.3 per cent in December compared to 3.2 per cent in the same month a year. The mining output also grew by 5.2 per cent in December compared to 2.8 per cent in the same month year ago.

Overall, 17 out of 22 industry groups in the manufacturing sector have shown negative growth in December.