Industrial production rose 2 per cent in January after remaining almost flat in the previous month, as manufacturing recovered slightly from contraction in December. The Index of Industrial Production (IIP) for December was revised to 0.07 per cent growth, from a contraction of 0.3 per cent in the provisional estimate. If provisional data of January is compared with that of December, the recovery would seem slightly higher than seeing it relative to the revised figure.
According to the data released by the Ministry of Statistics and Programme Implementation, IIP grew by just 0.5 per cent in the first 10 months of the current financial year (FY20) against 4.4 per cent in the corresponding period of the previous year. February and March would see the impact of coronavirus on the economy and might drag down the overall IIP growth for 2019-20. Both FMCG and durables have witnessed a fall in January. “The impact on supply chains will be felt more in February and March,” said CARE Ratings chief economist Madan Sabnavis.
The pharmaceutical sector, too, has been affected sharply this month, and could slip into the negative zone in the succeeding months, said Sabnavis.
Rumki Majumdar, economist, Deloitte India, said Indian industries will likely see a slowdown in both the supply of and demand for goods.
Sunil Kumar Sinha, principal economist at India Ratings, said a sustained weakness in factory output month after month means that recovery on the industrial front is unlikely in the near term and now with the impact of COVID-19 looming large it will get more prolonged.
Among three broad sectors, manufacturing and electricity recovered in January from contraction in December. However, mining saw some moderation in growth in January.Within manufacturing, capital goods continued to contract. The fall of 4.3 per cent in January this year came on the base of a decline in January 2019. There was not even a single month which saw growth in capital goods in the first 10 months of FY20. “This is not surprising, given that private investment has been lacklustre,” he said.
Juxtaposing this with the second advance estimates of gross fixed capital formation (GFCF), it looks like it is unlikely to turn positive this year. GFCF is projected to grow 1 per cent in 2019-20, according to the second advance estimates, the lowest expansion since 2002-03. However, the rate of contraction of capital goods output in January fell from 17.95 per cent in December. “This was driven by the base effect, and is unlikely to portend an improving investment scenario,” said Aditi Nayar, principal economist at ICRA.
Among various use-based industries, it was infrastructure and construction segments which saw the steepest rise in January — at 15.8 per cent. The growth has been consistent for most months of FY20. For instance, growth in this segment was 13.3 per cent in December 2019.