Industrial production shrinks fifth month in a row, rate slows to 10.4%

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Industrial production contracted for the fifth consecutive month in July at 10.4 per cent, slower than June’s 16.5 per cent.


The rate of contraction did not decline to a unmarried digit as used to be expected by many experts, which means that that economic recovery is also prolonged than used to be expected earlier.


The fall in industrial production has reduced since April when the metric plunged by a historic 57.6 per cent as the whole month used to be under lockdown because of the spread of Covid-19.


The entire components of the IIP-—mining, manufacturing, and electricity-—contracted, albeit at a smaller magnitude than the preceding month, official data showed on Friday.


Manufacturing, which accounts for 78 per cent of the IIP, saw output fall by 11 per cent in July, less than June’s 15.9 per cent contraction. Inherent stress in the sector had turn into visible since March, but reached a peak right through April output had fallen by a massive 67.1 per cent.


With manufacturing output continuing to sag, coupled with little signs of a recovery in the following months, the July figures are expected to solidify fears that GDP growth will have a rough drop for the second one quarter as polite, experts said. The first quarter GDP figures had been witness to an unprecedented 24 per cent contraction.


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“Today’s IIP release is consistent with our assessment that a fragmented recovery is underway in Q2FY21, and underscores that it is going to be a slow grind before the economy reverts to relative normalcy over the following few quarters,” said Aditi Nayar, principal economist at Icra.


Devendra Pant, chief economist at India Ratings, said the sharp recovery witnessed in the months of May and June is now fitting relatively flattish, partly on account of native lockdowns.


Mining activity also fell by 13 per cent, lower than June’s 19.8 per cent fall. Meantime, electricity generation continued to see a lower decline at 2.5 per cent, down from the somewhat modest 10 per cent fall in June, as domestic demand continued rising.


All but two of the 23 sub-sectors inside manufacturing posted a year-on-year contraction, same as the preceding month. Buoyed by drug exports and orders for sanitizers and protective gear, pharmaceutical production posted a 22 per cent, after 34 per cent growth in the preceding month. The only other growth puller, tobacco production, rose 6 per cent.


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The the most important capital goods segment, which denotes investment in industry, contracted by 22.8 per cent in July. With this, production in the category saw its eighteenth consecutive monthly decline. While contractions had moderated to 37.4 per cent in June, the segment had seen production nearly wiped out with a 90 per cent fall in April. Policymakers fear that as the government has exhausted its options of opening up even more sectors by easing foreign direct investment flows, capital goods production might take time to recuperate. Experts added that decline in capital goods will continue to rein high and would be the final to show a change in direction as at this time there is less incentive for companies to invest provided surplus capacity.


Consumer demand struggles


Consumer durables continued being a major casualty of the pandemic among user-based industries, recording a 23.6 per cent fall, down from June’s 35.5 per cent slide. Data from the beginning of the year showed that production of consumer durables used to be falling even before the Covid-19 crisis, with July being the twelfth month of contraction. Consumer non-durables, which come with many fundamental items, missing its initial growth spurt, registering a 6 per cent rise after June’s 14 per cent.


“Going forward, we will be able to continue to see improvement in segments like consumer non-druables including pharma segment. Alternatively, a ssutained improvement in other components such as consumer durabls and capital goods will require consumer and commerce sentiments to imrpove,” said Rajani Sinha, chief economist at Knight Frank India.


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Alternatively, among user-based industries, the biggest pick-up used to be witnessed in infrastructure goods. The contraction in the segment nearly halved for the third month in a row to 10.6 per cent in July, down from 18.8 per cent in June, driven by cement and steel.


Going forward, Madan Sabnavis, chief economist at CARE Ratings expected IIP growth to be negative albeit to a lesser extent in August while September may come closer to zero provided the pick-up in human movement which will boost pre-festival sales,.


Nayar said said to be had indicators for August supply 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.


The government announced the complete Index of Industrial Production (IIP) data for the second one month, following a 2-month hiatus, but cautioned that comparing the IIP in the post pandemic months with months previous it would not be appropriate. Alternatively, industrial output had begun shrinking even before, falling by 18.6 per cent in March, which saw only seven days of shutdown.

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