Demonetisation impact: IIP hits 4 month low of 0.4% in December


After scaling a 13-month high in November, industrial production dropped 0.4% in December, reflecting the effect of demonetisation, although the ferocity of contraction was somewhat masked by the persistence of a conducive base, reports fe Bureau in New Delhi.

Although the usually-volatile capital goods segment — a gauge for investment — dropped just 3%, a sharp 10.3% plunge in consumer durables and a 5% decline in non-durables output suggest the note ban dented demand, showed official data released on Friday. However, the plunge in the consumer durables segment seems to have been aggravated by an unfavourable base (it had grown 16.6% in December 2015).

Although excise duty collection in December rose 31.6% from a year earlier, it was partly due to additional revenue-enhancing measures like rate hikes.

Not surprisingly, commercial vehicles remained the worst performer, which alone shaved almost 0.5% off the Index of Industrial Production. Gems and jewellery, motorcycles and cement were among the worst performers, with a negative impact of around 0.3% each on the IIP.

The data showed manufacturing dropped 2% in December, compared with a 5.5% jump in November, while mining rose 5.3% from 3.7% in the previous month. Electricity generation rose 6.3% in December, against 8.9% in November. The IIP grew 0.3% in the April-December period, against 3.2% a year earlier.


Already, automobile sales recorded the worst monthly performance in 16 years in December. Also, the Nikkei Purchasing Managers’ Index (PMI) survey showed manufacturing activity contracted for the first time in a year in December, while services contracted for a second straight month.

Also, as Pronab Sen, former chairman of the National Statistical Commission, tells FE, a note ban hits consumption first and the full impact on the supply side could come with a lag.

Although the IIP posted a 1% rise in the third quarter of this fiscal — compared with a 0.9% contraction in the previous quarter — despite demonetisation, it was aided by the favourable base effect.

Aditi Nayar, principal economist at Icra, said: “Lead indicators present a mixed picture for January 2017, with a pick-up in expansion of output of Coal India, a base effect-led halving in growth of electricity generation, and a continued albeit narrowing contraction in aggregate auto production.”