Official data released on Tuesday showed that the recovery in industrial output seen in October turned out to be an aberration as it contracted again in November by 1.9 per cent, belying hopes of a festive boost. This has prompted economists to call for the continuation of the stimulus package in the upcoming Budget.
Industrial output growth, as measured by the index of industrial production (IIP), was revised upwards to 4.19 per cent in October, compared with 3.6 per cent estimated initially. IIP was almost flat in September after having declined continuously since March. IIP grew 2.1 per cent in November 2019.
IIP declined by 15.5 per cent in the first eight months of financial year 2020-21 (FY21), compared with 0.3 per cent growth in the corresponding period of the previous year. This shows that output was already slowing last year, but the Covid-induced lockdowns dragged it to contraction this year.
Data from core sectors and e-way bills had already indicated that the IIP numbers could be below par.
Output of the eight core sectors fell by 2.6 per cent in November, as against a contraction of 0.1 per cent in September and 0.9 per cent in October. Core sector constitutes 40 per cent of IIP.
Rahul Gupta, head of research – currency, Emkay Global Financial Services, said, “It was obvious that industrial production will contract after the output in the eight core sectors slumped.
Overall, industrial recovery continues to be uneven and fragile and will require the stimulus support to stay in momentum.”
Also e-way bill generation fell to 57.7 million in November compared to 64.2 million in October.
“As expected, the pace of growth of many sectors has improved in December 2020, reflecting a waning of the unfavourable base effect, and pickup in demand after the temporary post-festive slack. With lead indicators such as electricity demand, exports, and GST e-way bill generation displaying a rebound in activity in December, we anticipate a pickup in the IIP back to a growth of 2-4 per cent in that month,” said Aditi Nayar, principal economist at ICRA.
Of the three broad segments in IIP, manufacturing, which constitutes about 78 per cent of the index, again contracted by 1.7 per cent in November after briefly growing by 4.1 per cent the previous month.
Manufacturing is officially projected to decline by 9.4 per cent in gross value added in the current financial year, against 0.03 per cent the previous year, according to the first advance estimates. The very fact that advance estimates came before IIP numbers for November showed that manufacturing may perform worse.
Mining output nosedived by 7.3 per cent in November against a drop of 1.3 per cent the previous month.
It was electricity generation that gave IIP a push by growing for the third consecutive month. It rose 3.5 per cent in November, albeit a tad lower than the 4.2 per cent seen in October.
In the use-based categories, all segments showed contraction, barring infrastructure and construction goods, which too remained almost flat, showing just 0.7 per cent growth.
Capital goods declined by 7.1 per cent in November after rising by 3.5 per cent in October. If the trend does not reverse in the coming months, it may affect other goods as well.
Consumer durables and fast moving consumer goods, which rose by 18 per cent and 7 per cent, respectively, in October fell by 0.7 per cent each in November.
“Contraction in IIP is a cause for concern. It shows the weak demand in the economy,” said Deepthi Mathew, economist at Geojit Financial Services.