New Delhi: India's industrial output unexpectedly fell year-on-year in August for the first time in 18 months, as heavy rains dampened mining and construction activity while a drop in manufacturing indicated a broader slowdown.

India's industrial output fell 0.8% from August 2021, compared with a Reuters poll of a rise of 1.7% and rise of 2.4% in July.

"In an unpleasant surprise, the IIP (industrial output) contracted in August 2022, with heavy rains dampening construction activity and electricity demand," Aditi Nayar, economist at ICRA said.

Mining output fell 3.9%, while manufacturing activity fell 0.7%.

India's central bank, which has been tightening its policy aggressively to tame inflation that hit a five-month high in September, may have to walk a tightrope if activity does not improve in the coming months.

"The lower than expected IIP growth corroborates the narrative of a volume based slowdown, indicating stress in lower income households," said Saugata Bhattacharya, economist at Axis Bank.

Bhattacharya added that India's economy may slow more than currently expected given a drop in exports. Exports fell more than 3% in September according to government data released earlier this month.

Many economists have trimmed their Indian growth forecasts for the current fiscal year in the past weeks.

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