Factory output fell to a four-year low and contracted by 0.1 per cent in June with poor performance of manufacturing and mining sectors.
This is the lowest growth since June 2013 when the Index of Industrial Production (IIP) contracted by one per cent.
In contrast, IIP grew by a healthy eight per cent in June 2016. For May, IIP growth has been revised upwards to 2.8 per cent.
Official data released on Friday showed that factory output grew by a mere two per cent in the first quarter of the fiscal as against 7.1 per cent growth last fiscal.
Ahead of the roll out of the Goods and Services Tax (GST) from July 1, manufacturing sector activity contracted by 0.4 per cent in June as against a 7.5 per cent growth last year.
Mining expansion slows
Expansion in mining was also negligible with 0.4 per cent growth in June compared to 10.2 per cent growth a year ago.
Electricity generation saw the fastest growth, which too was at a muted 2.1 per cent in June 2017 as against 9.8 per cent growth in June 2016.
In terms of industries, 15 of the 23 industry groups in the manufacturing sector registered negative growth with the sharpest contraction seen in manufacture of electrical equipment (- 20.1 per cent) and fabricated metal products (-10.5 per cent).
Similarly, four of the six sectors in use-based classification of industries registered negative growth in June, with the only exceptions being infrastructure equipment and consumer non-durables.
Primary goods production fell by 0.2 per cent in June as against a growth of 8.2 per cent a year ago. Capital goods, which denote investments, also contracted 6.8 per cent in June. It grew by 14.8 per cent a year ago.
Intermediate goods declined by 0.6 per cent in June as compared to six per cent growth a year ago. Infrastructure goods grew by 6 per cent. Meanwhile, consumer durables contracted by 2.1 per cent while consumer non-durables grew by 4.9 per cent.
Analysts blamed the high base effect and clearing of stock before GST for the dip in factory output.
Private sector woes
“The unfavourable base effect, the reduction in inventories ahead of the transition to the GST, and slide in growth of non-oil exports culminated in a marginal contraction in IIP,” said Aditi Nayar, Principal Economist, ICRA, while cautioning that the contraction in capital goods output is for the third consecutive month and highlights the continuing sluggishness in private sector investment activity.
The second volume of the Economic Survey has also highlighted the low private investment and cooling inflation while calling for further easing in monetary policy to boost growth.
It has argued that the repo rate was 25 to 75 basis points above the neutral rate.