"Intermediate goods" sector, however, showed a healthy growth of 7 percent, up from 2.9 percent in the year-ago month. This was its first such contraction in 21 months, showing the declining momentum of both investment and consumption. The data released by the ministry said the industry group "Manufacture of motor vehicles, trailers and semi-trailers" has shown the "highest negative growth of (-) 23.1 percent followed by (-) 21.7 percent in 'Manufacture of machinery and equipment n.e.c.' and (-) 18.0 percent in 'Other manufacturing"'.
Providing further details of the IIP, the NSO data showed the worst performance came from the capital goods segment as its output shrank by over 21% as against an expansion of 10.3% in August a year ago.
The manufacturing sector, which contributes over 77% to the IIP, contracted by 1.2%, the lowest in five years, as against a growth of 5.2% in the year-ago month, according to the data released by the National Statistical Office (NSO).
The country's industrial output slumped the most in almost seven years and contracted for the first time in over two years.
Infrastructure goods contracted 4.5 percent in August against a growth of 8 percent in the same period a year ago. Consumer non-durables segment posted an expansion of 4.1% in August. The index had grown 4.6% in July, and 4.8% in August 2018. This compares with 6.5% expansion in August 2018.
Data released by the Ministry of Statistics Friday showed that manufacturing and electricity contracted 1.2% and 0.9% respectively, while mining output remained nearly flat growing at 0.1%.
"The cumulative growth for the period April-August 2019 over the corresponding period of the previous year stands at 2.4 per cent", it added. So far this year, it has lowered the policy rate (or the repo rate, at which the RBI lends to commercial banks) by 135 basis points. "For the remainder of the fiscal year September 2019-March 2020, we are expecting industrial output growth to average around 5-6% on the premise of which the growth for fiscal year 2019-20 will be around 4-4.5%", he said.
India's infrastructure output fell in August from a year earlier, the first contraction since April 2015, signalling the recovery in Asia's third-largest economy may be slow despite a cut in the corporate tax rate and other policy measures created to spur investment.
Earlier this month, the RBI revised downwards its GDP growth forecast for the current fiscal to 6.1% from the previous estimate of 6.9% after the first-quarter economic growth slipped to over six-year low of 5%.
The government has also seen tax collections falling due to weakness in the economy.
"IIP growth has been the lowest in the last 81 months and saw the first contraction after June 2017".