India's factory output contraction eases to 10.4% in July: IIP data

The Index of Industrial Production (IIP) contracted by 10.4% in July as compared to a contraction of 16.6% in June as the GDP witnessed a historic contraction of nearly 24 per cent in Q1FY21.  While the GDP witnessed a slowdown, the industrial activity is slowly picking up as the country enters Unlock 4.0 despite the surging coronavirus cases.

Rating agency ICRA had expected a single-digit contraction in the upcoming print for the Index of Industrial Production for July 2020. According to the rating agency, while the improvement in the industry had gathered speed in July 2020, the momentum of the recovery in the services sector stalled that month.

Other indicators, GST e-way bills, rail freight, port cargo traffic, domestic airlines' passenger traffic, and the consumption of petrol and ATF, reported only a modest improvement in their YoY performance in July 2020, relative to June 2020.

As per the agency, government expenditure, a key driver of economic activity in Q1FY21, reported a volatile trend in July 2020.

It pointed out that revenue expenditure growth slipped from 40.1 per cent in June 2020 to 18.6 per cent in July 2020, while remaining substantial. However, capital expenditure contracted by 47.1 per cent in July 2020 after having more than doubled in June 2020.

Earlier, the IIP had contracted by 16.6 per cent in June compared to 33.8 per cent in May and a record 57.6 per cent slide in April.

After releasing only the index numbers for the IIP, the government had in August announced that the total data for June but cautioned that comparing the IIP in the pandemic months with those preceding Covid-19 would not be appropriate.

On traditional year-on-year, all the components of the IIP — mining, manufacturing, and electricity — saw contraction, albeit by a smaller magnitude, than in the previous month. All but two of the 23 sub-sectors within manufacturing posted a year-on-year contraction. Buoyed by drug exports and orders for sanitisers and protective gear, pharmaceutical production rang up a 34 per cent rise, hugely bettering its 2.45 per cent growth in the previous month.