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IIP grows 0.2% in Sept, enters positive territory after 6-month contraction

The index of industrial production (IIP) grew by 0.2 per cent in September on a year on year basis compared to a 7.36 per cent contraction posted in August

Topics
IIP | Industrial growth | Consumer goods

Dilasha Seth  |  New Delhi 

PMI
Manufacturing category accounts for 77 per cent of the index of industrial production.

Amid a recessionary outlook, India’s industrial activity returned to the growth territory in September after a gap of six months. Data released on Thursday showed a small uptick led by recovery in consumer goods, electricity and mining sectors.

This post-Covid revival could be attributed to pre-festival stocking and a favourable base, but economists have cautioned against its sustainability in the near run.

The index of industrial production (IIP) grew by 0.2 per cent in September on a year on year basis compared to a 7.36 per cent contraction posted in August, according to data by the national statistical office. The for August was revised up from (-) 8 per cent reported provisionally last month. This is in line with the revival trend seen in other broad economic indicators ahead of the festival season like generation of e-way bills, goods and services tax collection and auto sales.

“The recorded a small but heartening YoY rise in September, beating our estimate of a mild 1 per cent contraction. Overall, we expect the festive season push to result in a mid to high single-digit growth in October, though its sustenance after the festive period is over remains uncertain,” said Aditi Nayar, principal economist, ICRA Ratings.

Devendra Kumar Pant, Chief Economist, India Ratings & Research, agreed. “…before we start rejoicing, it may be worthwhile to point out that it would not have been possible without the low base of last year. Factory output had contracted by 4.6 per cent in September 2019. However, the good part is that economic activities are gaining traction.”

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While the overall manufacturing activity continued to contract at 0.6 per cent, sub-sectors like consumer non-durables and consumer durables, and construction goods posted a growth ahead of the festival season.

Consumer non-durables, comprising essential goods with a broadly non elastic demand grew by 4.1 per cent in September, while consumer durables—mainly white goods and mobile phones--posted a 2.8 per cent growth during the month. Construction goods production grew by 0.7 per cent in September.

Manufacturing category accounts for 77 per cent of the index of industrial production.

Capital goods contracted by 3.3 per cent compared to 14.7 per cent in August.

“The sharp narrowing in the contraction of capital goods is one of the biggest positives in the disaggregated data, and its sustainability in the coming months will be keenly watched to gauge the recovery in investment sentiment and activity,” said Nayar.

The contraction in industrial activity narrowed to 6 per cent in the second quarter of 2020-21 from 35.5 per cent in the quarter ended June. The April to September period saw a 21.1 per cent decline in industrial activity.

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First Published: Fri, November 13 2020. 00:24 IST
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