The Index of Industrial Production (IIP) contracted by 0.1% in March. This was against the consensus growth expectation of 1.2%. Also, it is after a gap of 21 months the index entered negative territory. Factory output is the closest approximation for measuring economic activity in the business landscape and the March figures therefore deserve attention. Signs of slowdown in the economy have been visible for quite some time now, and the latest figures exacerbate this concern.

In February 2019, growth in IIP stood at 0.1% and for the month of March, 2018 total growth recorded was 5.3%. Also, for the full year to March, factory output growth was at a three-year low of 3.6%. According to data released by the Central Statistics Office, while growth in eight core infrastructure industries hit a five-month high of 4.7% in March, capital goods growth at -8.7% continued its negative trend. Manufacturing too contracted by -0.4%.

These figures are not at all encouraging. Capital goods output is a proxy for investment activity and its consecutive fall in three months during January-March 2019 is a real concern. Consumer durables output, which is an indicator of urban demand, also fell 5.1%, against 6.2% growth in March last year. Similarly, there was growth only in 12 of the 23 industry groups in the manufacturing sector.

This weakness in both investment and demand along with declining growth of primary goods and deepening contraction of intermediate goods signal to fragile industrial activity in the near term. The March IIP figures also validated the auto sector data released by SIAM last month, showing a slowdown in urban demand, with car sales growing at a five-year low of 2.7% in 2018-19. These are not good signs for the economy.

I invite your opinions.