India’s factory output fell (-)0.7 percent in August, the second successive monthly decline, but revival hopes floated on festive season sales, pay hike for government employees and greater rural spending on the back of good summer rains. Data released on Monday showed factory output growth has recovered marginally from an eight-month low of 2.4 percent in July, but only just, suggesting uneven recovery in the broader economy. The `manufacturing’ sector, which represents more than 75 percent of the index of industrial production (IIP), contracted -0.3 percent in August from -3.5 percent in the previous month. Mining production growth slumped (-)5.6 percent, pulled down primarily by fall in coal (-9.2 percent) and crude oil (-3.9 percent) output. Moreover, capital goods output, a metric to gauge capacity additions by companies, have contracted for 10 successive months mirroring faltering investment activity. It fell 22.2 percent in August from 29.5 percent in July. A pick up in festive season buying, which usually peaks between October to December, may not immediately result in greater investment because of idle capacities and large unsold stock. Banks have started reducing lending rates following last week’s 25 basis point cut in RBI’s repo rate—the rate at which the central bank lends to commercial banks. This should reduce companies’ cost of capital. India’s economy grew 7.1% during April to June, the slowest in 6 quarters, but analysts, policymakers and the RBI expects a revival in the coming months boosted by good rains, a pay bonanza for government employees and festive season buying. Consumer durables output grew 6.3 percent in August from 5.9 percent. It is expected to gather pace in between October to December reflecint greater household spending on goods such as cars, televisions and refrigerators.
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