Economy

Published: Dec 29, 2021
Updated: Dec 29, 2021

INDUSTRIAL OUTPUT: Most sectors in de-growth boat

Industrial production contracted to a 6-month low of 3.6% in February 2021, though better than CARE Ratings’ estimate of 5.7% during the month. The steep decline in industrial production has been broad-based and has come on the back of a high base effect (growth of 5.2% in February 2020). After recording a marginal uptick in September and October 2020, the degrowth in industrial production continues for the 4th consecutive month. There has been an upward revision in the IIP growth of November 2020 to -1.6% (earlier -2.1%) and January 2021 to -0.9% (earlier estimate -1.6%). Core sector growth, which accounts for nearly 40% weightage in the IIP basket, had registered a notable deceleration of 4.6% in February 2021 and the notable decline in IIP is in line with the movement of core sector growth.

Barring electricity, which has witnessed almost flat growth in February 2021, the mining and manufacturing component of the index has seen a notable decline in February 2021. The biggest positive under the use-based classification has been consumer durables which has seen a sharp pick-up to a 4-month high. However, it needs to be noted that this growth has come on the back of a negative base effect. All other sub-components under the use-based classification have seen de-growth in February 2021.

By Economic Activity

• Mining output has contracted for the 5th consecutive month. The IIP-Mining fell by 5.5% in February 2021 compared with 9.6% growth during the corresponding month last year. This fall can be ascribed to high levels of coal inventories with both coal producers and power plants, coupled with subdued power generation.
• Manufacturing, which has the highest weightage (77.6%) in the IIP, fell by 3.7% in February 2021 compared with a growth of 3.8% in February 2020. The de-growth in this segment is at a 6-month low and this is the 4th consecutive month of decline. — 17 out the 23 sub-industries in the manufacturing segment have recorded negative growth during February 2021, with double-digit growth being exhibited by print media (-28.3%), furniture (-19%), wearing apparels (- 14.2%), beverages (-13.2%) and paper (-10.3%). — Basic metals, which has the highest weightage (12.8%) in the manufacturing index, fell sharply by 4.8% in February 2021 and this is the first de-growth after 6 consecutive months of growth. Chemicals (weightage: 7.9%) also registered a contraction of 1.8% in February 2021 after 5 consecutive months of growth. — Notable double growth of 21.1% was recorded in the case of computer and electronic commodities in February 2021. Nevertheless, it is important to note that this is on the back of a low base (-8.8% in February 2021). — 5 more manufacturing industries, namely motor vehicles (4.9%), other transport equipment (3.5%), electrical equipment (3.2%) , rubber (2.6%) and other manufacturing (2.1%) have registered notable growth in February 2021. — Electricity output registered a flat growth of 0.1% in February 2021 compared with 11.5% in the corresponding month last year. The high base effect capped the growth for the month. The low growth is reflective of low demand from the commercial sector, including manufacturing and services.

IIP by Use-Based Classification

• Capital goods continue to record negative growth of 4.2% in February 2021, which is reflective of low investment, and capacity utilisation in manufacturing and infrastructure.
• Primary goods (-5.1%), intermediate goods (-5.6%) and infrastructure goods (-4.7%) have recorded a notable decline in growth during February 2021, primarily on account of a high base effect, especially for primary goods and intermediate goods.
• Consumer goods have shown contrasting movements during the month of February 2021. Consumer durables, which is the biggest positive for the month, rose by 6.3%, which is a 4-month high. This growth has been because of notable pick-up in production of auto components and electronic goods. Consumer non-durables, on the other hand have registered a decline of 3.8% in February 2021, despite a low base (-0.3%) in the corresponding month last year.

Cumulative: April-Feb 2021

During April-February 2021, the IIP contracted by 11.3% on a cumulative basis when compared with 1% growth during the corresponding period of last year. All components of the sectoral and use-based classification have registered a decline in their production, weighed down by sharp deceleration in the first half of this fiscal. The manufacturing sector, which has the highest weight in the IIP index, has fallen by 12.6% during this period followed by a significant decline in mining (-9.6%). Under the used-based classification, 4 sub-components which have registered high double-digit de-growth include capital goods (-23.5%), consumer durables (- 19.6%) and intermediate and infrastructure goods (- 12.2% each).

According to Care Ratings, there is hope in the month of March 2021 for industrial output growth to be positive on account of companies rushing towards achieving their annual targets (supported by a sharp offtake in credit) coupled with a negative base effect of -18.7% in the corresponding month of the previous year. Despite the likely improvement in March 2021, negative IIP growth for the full year cannot be ruled out.