IIP growth slows down to 3.1% in September as base effect fades away

The 3.1 per cent YoY growth was driven by a jump in mining and manufacturing activity

The industrial output growth slowed to 3.1 per cent year-on-year (YoY) in September, mainly because of the waning base effect, the data released by the ministry of statistics and programme implementation showed.

It had jumped 11.9 per cent in August. The YoY growth was mainly driven by a jump in mining and manufacturing activity.

The industrial production in volume terms, as measured by the index of industrial production (IIP), grew 4 per cent, when compared to September 2019 or pre-Covid level. However, on a sequential basis, it contracted 2.6 per cent.

“As anticipated, the IIP growth recorded a broad-based plunge to an insipid 3.1 per cent in September, reflecting the base effect, disruption from heavy rainfall, and the impact of semiconductor shortages on auto output. This is despite the pre-festive season inventory build-up suggested by the GST e-way bill data,” said Aditi Nayar, chief economist at ICRA.

The cumulative growth during April-September (2021-22) period was 23.5 per cent, compared to a contraction of 20.8 per cent during the same period a year ago.

The manufacturing sector output, which accounts for more than 77 per cent of the entire index, grew 2.7 per cent YoY in September, against 0.4 per cent growth last year. On a sequential basis, it contracted moderately at 0.5 per cent.

The growth in electricity generation stood at 0.9 per cent YoY in September, compared to 4.9 per cent growth a year ago. The mining activity, which accounts for over 14 per cent of the entire index, grew 8.6 per cent YoY, as compared to 1.4 per cent growth in September 2020.

“At the broad classification level, the IIP data of September 2021 shows some interesting trend. Despite registering YoY growth in September, the output level of both the segments (mining and manufacturing) is still lower than the pre-Covid period (February 2020). On the other hand, electricity grew only 0.9 per cent YoY in September, but its output level is higher than the pre-Covid period,” said Sunil K Sinha, principal economist at India Ratings.

The consumer durables output witnessed a 2 per cent contraction in September against 5.3 per cent growth during the same period last year. However, on a sequential basis, the consumer durables segment grew 6.7 per cent. Consumer non-durables output contracted 0.5 per cent in September, as compared to 2.4 per cent growth last year, and 0.9 per cent contraction as compared to August.

“The average YoY growth figures of primary, capital, intermediate, infrastructure, consumer durable, and non-durable goods for August and September are 10.8 per cent, 10.6 per cent, 7.6 per cent, 9.2 per cent, 3.0 per cent, and 2.3 per cent,” Sinha said.

“The festival demand is finding reflection in the YoY growth, but the consumption demand after the Covid still has not reached the level that industrial output could reach or surpass the pre-Covid period,” Sinha said. India Ratings and Research (Ind-Ra) believes revival of industrial output will remain a challenge in the near term, he said.

Capital goods output, which is reflective of the private sector investment scenario, grew 1.3 per cent, as compared to 1.2 per cent contraction last year. In the construction and infrastructure segment, the growth was 7.4 per cent YoY as compared to 4 per cent growth last year.

“Going forward, for sustainable economic momentum in 2022, the critical driver would be boost to consumer spending through demand stimulating government policies. Eventually, private investment will also improve as capacity utilisation level improves,” said Rajani Sinha, chief economist & national director (research) at Knight Frank India.