India's industrial production index fell 1.9 percent year-on-year in October after an increase of 0.7 percent in September. Industrial output has been weak in recent months even before the Indian government's decision in November to withdraw high-denomination currency notes as legal tender, a move which will likely prompt further weakness in this index in the near-term.
Weaker year-on-year growth in industrial production was mainly driven by the manufacturing index, which fell 2.4 percent year-on-year in October after an increase of 0.9 percent in September. Twelve of the twenty-two industry groups classified as part of the manufacturing sector recorded negative year-on-year growth in their output in October. The electricity index also recorded weaker year-on-year growth, down from 2.4 percent to 1.1 percent. This was partly offset by a smaller year-on-year fall in the mining index, which fell 1.1 percent in October after a drop of 3.1 percent in September.
More timely PMI surveys released over the last week show that business conditions deteriorated sharply in November, due largely to cash shortages caused by the government's decision. This suggests that there will also likely be further weakness in the industrial index in November and possibly the next few months. The Reserve Bank of India, however, has argued, that the negative impact of the currency move may be relatively short-lived. Officials there will have seen industrial production data for November but not for December by the time of the next scheduled policy meeting in early February.
Industrial production measures the physical output of the nation's factories, mines and utilities. Data are not seasonally adjusted and the main is on the annual growth rate of total industrial production and, within that, manufacturing output. The report is usually released around six weeks after the end of the reference month.
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that will not lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.
The index is a quantitative index with the production of the items being expressed in physical terms. The Index is compiled by taking into account the quantities of items produced during the current month, compared with the average monthly production in the base year. Selection of items is based on the total production of the items as the primary (main) product as well as secondary (by) product. Data are available monthly within six weeks of reference month.