Manufacturing output in IIP still shows weakness as headline numbers grow

One reason for decline is muted domestic demand, particularly in rural areas due to high inflation

While the headline numbers in the industrial output gathered momentum in January, manufacturing continues to be weak if one goes into detail.

The index of industrial production (IIP) increased to 5.2 per cent in January from the revised 4.7 per cent in the previous month year-on-year. Provisional numbers had put the IIP growth figures at 4.3 per cent.

Within IIP, manufacturing also rose to 3.7 per cent from the revised 3.1 per cent year-on-year over this period. The provisional numbers had shown that manufacturing grew by 2.6 per cent in December. If provisional numbers of January are compared with provisional numbers of December, there is remarkable recovery in both overall IIP as well as manufacturing.  

However, within manufacturing 10 sectors out of total 23 still showed decline in production in January, even as it was less than 11 such industries in the month of December.

The sectors that fell in production included labour intensive textiles, apparel, leather, and furniture. However, modern technology industries such as computer, electronic and optical products also showed contraction in production.

While slowdown in demand from overseas markets may have done a part of the damage, leather exports in fact rose 3.9 per cent and readymade garments of all textiles 6.19 per cent in January. However, IIP and trade data cannot be strictly compared one to one as the latter in current dollar prices, while the former is an index. These two give only broad indications when compared with each other.

Part of the answer lies in muted domestic demand, particularly in rural areas due to high inflation and other factors. After a break of two months, the headline retail price inflation again crossed the Reserve Bank of India's upper tolerance level of six per cent in January. It rose to 6.52 per cent in January from 5.72 per cent in the previous month. Inflation in rural areas stood at 6.85 per cent in January compared to 6.05 per cent in the previous month.

Because of impressive numbers in May and June due to low base due to regional lockdowns forced by the second wave of Covid-19 in these months last year, output in seven sectors was down in the first ten months of the current financial year. 

-	Number of manufacturing industries showing fall in output index	Manufacturing growth in IIP
April, 22	5	5.6
May	1	20.7
June	2	12.9
July	9	3
August	9	-0.4
September	9	2
October	17	-5.8
November	7	6.4
December	11	3.1
January	10	3.7

Source: MoSPI