Mining activities and electricity generation also contracted in September.
September saw the slowdown in the manufacturing
sector — which accounts for 78 per cent of the index — deepen at a fast pace. September output contracted by 3.9 per cent — much higher than the 1.6 per cent contraction in August.
Of the 23 sub-sectors within manufacturing, 17 recorded year-on-year contractions, up from 15 in the previous month. The IIP
database showed contraction spread across all segments of the automobile sector, with motor vehicle production dipping by 25 per cent in September.
Auto components, commercial vehicles and two-wheelers were flagged by the government as sectors pulling the overall IIP
growth down. Machinery production reduced by 18.2 per cent and the production of electronic goods remained contractionary, going down by 10.6 per cent in September. This came after the government pushed manufacturing in the sector in a sustained manner over the past one year through a series of benefits and a phased manufacturing programme aimed at reducing imports of electronics goods.
The capital goods segment, that signifies investment, contracted 20 per cent in September after a 21 per cent fall in August. Production in the category remained in the red for the eighth-straight month despite government efforts to open up even more sectors to easier foreign direct investment (FDI) flows earlier this year.
September's industrial production also showed that consumer demand
continues to remain in the doldrums. September, the month before the festive season kicked in, saw production of consumer durables contract for the fourth-straight month. Production contracted by 10 per cent, up from 9 per cent in the previous month. The negative growth baffled economists who said e-commerce sales in October was very high and should have been on the back of positive growth in this segment.
Crucially, the consumer non-durables category slipped into contraction for the first time in FY20, with production thinning by 0.4 per cent. "The sequential worsening in the performance of consumer durables and non-durables in September belies any hopes of a pre-festive restocking of inventories," Aditi Nayar, principal economist at ICRA, said. The late withdrawal of the monsoon also dampened construction activity, contributing to the contraction in the output of infrastructure goods in September 2019, she said.
"The economy is presently 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," Devendra Kumar Pant, chief economist at India Ratings & Research, said.
With the output of the core sectors falling by a record 5.2 per cent in September to a 14-year low, and production by seven of the eight industries declining, slow economic growth is expected by economists in the second quarter of this fiscal year. Experts predicted that GDP growth is likely to slip in the second quarter of FY20 from the already multi-year low in the first quarter. As a result, the likelihood of another rate cut in December has intensified, despite elevated CPI inflation, they said.