Green shoots: Deceleration in July’s industrial activity eases

By Sarkaritel September 12, 2020 07:41

New Delhi, Sep 12  A sequential rebound in industrial activity eased the contraction rate of India’s factory output in July, official data showed on Friday.

However, Covid-19 pandemic continued to heavily dent India’s factory output on a year-on-year basis.

As per the Quick Estimates of Index of Industrial Production (IIP), the contraction in factory output eased to (-) 10.4 per cent in July from (-) 16 per cent reported for June.

Nevertheless, on a YoY basis, the comparison becomes even more stark, as the IIP had registered a growth of 4.9 per cent in the corresponding period of last year.

Besides, the Ministry of Statistics and Programme Implementation’s estimates document said that the current index readings should not be compared with those of the months preceding the Covid-19 pandemic.

“In view of the preventive measures and announcement of nation-wide lockdown by the government to contain the spread of Covid-19 pandemic, a large number of the industrial sector establishments were not operating from the end of March, 2020 onwards,” the ministry said.

“This has had an impact on the items being produced by the establishments during the period of lockdown. With the lifting of restrictions in the subsequent periods, industrial activity is resuming.”

Accordingly, the IIP for mining, manufacturing and electricity sectors for July 2020 stood at 87.2, 118.8 and 166.3 respectively.

In July, the manufacturing production de-grew by (-) 11.1 per cent from (-) 15.9 per cent in June and a growth of 4.8 per cent reported for the corresponding month of last year.

Similarly, electricity generation contracted by (-) 2.5 per cent from (-) 10.2 per cent in June and a growth of 5.2 per cent in July 2019.

The mining output declined by (-) 13 per cent from (-) 19.6 per cent in June from an increase of 4.9 per cent in the corresponding month of the previous year.

Furthermore, the data on a YoY basis showed that manufacturing of primary goods degrew by (-) 10.9 per cent, capital goods by (-) 22.8 per cent, intermediate goods (-) 12.5 per cent.

Similarly, the production of infrastructure or construction goods contracted by (-) 10.6 per cent and consumer durables by (-) 23.6 per cent.

Nonetheless, consumer non-durables showed a growth of 6.7 per cent.

“The data also shows that the sharp recovery witnessed in the month of May and June is now becoming somewhat flattish. Part of the reason is local or partial or weekend lockdown imposed in many parts of the country, often without much advance intimation,” said India Ratings and Research Principal Economist Sunil Kumar Sinha.

“This is not allowing orderly recovery of economic activities. In fact, IIP growth trend mirrors the GSDP weighted workplace mobility trend, which after a sharp recovery in the month of May and June has flattened out for the month of July and August 2020.”

According to ICRA Principal Economist Aditi Nayar, “Available indicators for August 2020 provide mixed cues, with a base effect-led improvement in sectors such as coal and rail freight, modest recovery in petrol consumption, port cargo traffic and GST e-way bills, juxtaposed with a worsening pace of contraction of electricity generation and diesel consumption, which may be a consequence of heavy rainfall in the second half of that month.”

“Over the next three months, while the base effect is favourable given the contraction in industrial output from August-October 2019, the impact of waning pent-up demand, as well as restocking ahead of the festive season remains to be seen. Moreover, a late withdrawal of monsoon rains could impact the mining and electricity generation activities in September-October 2020.”

By Sarkaritel September 12, 2020 07:41