Industrial recovery slow as manufacturing leads 8% fall in August IIP

Though September high-frequency indicators offer hope, August IIP data shows well performing FMCG sector went from green to red, while recovery turned stale for primary goods

The industrial production in August was eight per cent lower than in the same month of the previous year, official data rele­ased by the National Statistical Office on Monday showed. The dent in Index of Industrial Production (IIP) was over a third of output at the peak lockdown period (April and May). 

Manufacturing output contracted 8.6 per cent, while the fall in electricity production moderated to 1.8 per cent, data show. But disaggregated data across sectors shows the extent of the problem. IIP for consumer non-durables, or fast moving consumer goods, had grown 14.3 per cent in June. In July, it moderated to 1.8 per cent growth. But it fell 3.3 per cent in August, suggesting that FMCG inventory is outpacing sales, or that gains made immediately after lockdown was lifted were short-lived. 

“Discouragingly, consumer non-durables slipped back into a mild contraction over the previous year in August, amid an unfavourable base effect, signalling that the push related to inventory restocking may have petered out,” Aditi Nayar, principal economist at ICRA, said. 

The biggest contributor to IIP is primary goods, such as base metals, fuels, and electricity. From July to August, it showed deterioration from 10.8 per cent contraction to an 11.1 per cent fall in August. 

Domestic production of capital goods, crucial indicator of private investment, suffered the strongest fall at 15.4 per cent in August, showing that investment revival will lag overall economic growth. 

High frequency indicators — such as railway freight volumes, power consumption, port traffic, GST collection — appear to support recovery in September. The drop in FMCG production in August is worrisome, but recently announced stimulus measures portend an improvement, experts said.

They underlined the slow recovery in industrial production, taking cognisance of the improvement over successive months. 

“On the whole, whether we look at use-based classification or two-digit classification, most segments of factory output are still witnessing contraction over the previous year. But data is hinting at slow but steady recovery. However, much of this recovery would remain contingent upon the pace of Covid-19 infections going ahead,” said Sunil Kumar Sinha, principal economist at India Ratings. 

There is a sense among experts that Monday’s stimulus measures announced by the Centre might prove beneficial for consumer durables and automobiles output.

“If the measures were to work, capital goods and consumer durables should witness better growth from October. Rural demand typically booms in Q3, and that should help as well,” said Madan Sabnavis, chief economist at Care Ratings, in a note.