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Dismal factory output opens the door for more RBI rate cuts, say experts

India's industrial output contracted by 4.3% in September 2019 from a year earlier.|
Updated: Nov 11, 2019, 08.11 PM IST
The IIP had declined by 0.7 per cent in April, 2012.
Showing signs of sluggishness in the economy, industrial production shrank by 4.3 per cent in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors, as per official data released on Monday, PTI reported.

According to the Central Statistics Office (CSO) data, 4.3 per cent contraction is the lowest in 2011-12 series of Index of Industrial Production, which was unveiled in May 2017. The IIP had declined by 0.7 per cent in April, 2012.

Factory output, measured in terms of Index of Industrial Production (IIP), had expanded by 4.6 per cent in September 2018.

Here’ how market experts and economists reacted to the data:

Devendra Kumar Pant, Chief Economist, India Ratings & Research
IIP has been very volatile and the small momentum of couple of months fizzles out soon. The Indian economy is facing a structural growth slowdown originating from declining household savings rate and low agricultural growth. Low agricultural growth is feeding into low agricultural and non-agricultural wage growth in rural areas, which is impacting rural demand adversely. We believe monetary authorities will continue to follow accommodative monetary policy and expects further rate cut in December monetary policy.

VK Vijaykumar, Chief Investment Strategist, Geojit Financial Service
IIP for September was expected to be poor. But the contraction is a bit higher than expected. A silver lining is the increase in intermediate consumption by 7 per cent. This is indicative of a recovery by December.

Ambareesh Baliga, Market Expert
This slowdown was factored in to an extent. The slowdown in the auto sector would have an impact across sectors. This will raise expectations for another rate cut.

CARE Ratings
In the upcoming months, the industrial output is expected to pick up pace with the likelihood of improvement in the demand owing to festive season and improvement in the rural spending post-harvest season. The industrial output growth will also in part be aided by the favourable base post November 2019. In order to attain the 4% growth for the entire fiscal year 2019-20, during the second half the industrial output must grow at an average 6-6.5%.

Rahul Gupta, Head of Currency, Emkay Global Financial Services
There was a sharp contraction in September IIP to -4.3% from -1.1%. The persistent slowdown in industrial growth may force RBI to go for another round of policy rate cut. However a possible rise of headline inflation above the medium term target of RBI (4%) may act as a point of caution before RBI does a rate cut.

S Ranganathan, Head of Research, LKP Securities
September factory output impacted predominantly by decline in capital goods, mining and consumer non-durables.

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