Economy

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

IIP still in recover still in recover still in recovery mode

The IIP, measuring industrial output, moderated to 13.6% in June 2021 compared with 28.6% in May 2021 and degrowth of 16.6% in June 2020. CARE Ratings has estimated IIP growth at 19% during the month. This moderation can be ascribed to both the weakening of the base effect as well as lower levels of industrial activity across states amid the restrictions of June 2021. The momentum witnessed in industrial activity over the past four months is likely to moderate further as the base effect continues to weaken. On a positive note, the IIP grew by 5.7% in June 2021 over the previous month, indicative of sequential improvement. This improvement was aided by the slow resumption of economic activities amid the subsiding 2nd wave of Covid-19 which peaked during May 2021. The core sector output, accounting for nearly 40% weightage in the IIP basket, grew at 8.9% (yoy) and 1.1% (mom) during the month.

All sectors and use-based classification of the IIP basket witnessed a yoy improvement, except the consumer non-durables segment. The overall IIP growth has been restricted by weakness in the manufacturing segment. All components, except mining output, have witnessed a growth on a sequential basis

By Economic Activity

• Mining sector activity grew by 23.1% in June 2021 compared with negative growth of 19.5% in June 2020. However, it witnessed a sequential deacceleration of -2.3% over the previous month. This can be ascribed to the lower demand. However, gradual resumption of economic activities in June 2021 restricted the downside.
• Manufacturing, which contributes to the highest weightage (77.6%) in the industrial output index, witnessed a growth of 13% as against a 17% contraction in the corresponding month last year. — 17 out of 23 industries recorded positive yoy growth in June 2021. — The biggest positives in the manufacturing segment are manufacture of textiles (75.4% yoy growth), motor vehicles, trailers and semi-trailers (61.5%), other transport equipment (41.5%) and electrical equipment (37.6%). The sharpest fall has been in case of manufacture of tobacco products (-16.9%). — Basic metals comprising the highest weight (12.8%) in the IIP index grew at 24% in June 2021.
• Electricity output in June 2021 rose by 8.3% vis-à-vis a contraction of 10% in June 2020. The output recorded an uptick of 4.4% on a mom basis, reflective of a pick-up in demand from the commercial sector.

By Use-Based Classification

All items based on the use-based classification except consumer non-durables have registered a yoy growth in June 2021.

• Capital goods output witnessed a growth of 25.7% in June 2021 v/s -37.4% in June 2020. On a positive note, the output of capital goods grew by 27.1% over the previous month. However, this growth must be interpreted with caution as it is backed by a statistical push and is not reflective of the capacity utilisation levels and actual investment in the economy. The index at 80.2 in June 2021 is lower than 107.7 in March 2021 prior to imposition of the restrictions associated with the second wave of the coronavirus.
• The consumer durables segment witnessed a yoy growth of 30.1% as against a contraction of 34.8% in June 2020. On the contrary, the growth in the consumer non-durables segment deaccelerated to -4.5% compared with 6.9% in the corresponding month of the previous year.
• Infrastructure, intermediate and primary goods output grew during the current month, aided by the low base effect of last year. Output of intermediate goods grew by 22.6%, followed by infrastructure/construction goods (19.1%) and primary goods (12%).

Cumulative April-June 2021

The first quarter of FY22 commenced amid a resurgence of Covid-19 infections. The severity of the 2nd wave and spread of infections in both urban as well as rural regions prompted re-imposition of fresh curbs, hampering industrial activity across states. However, the less stringent restrictions of Q1FY22, viewed against the lockdown of last year (Q1FY21), have translated into industrial output of 45% in the current quarter vis-à-vis -35.6% in the corresponding quarter of the previous year.

CARE Ratings

The healthy growth in industrial activity during the current month can be ascribed to the base effect at play. The steep decline in the number of daily confirmed coronavirus cases and increased economic activity have driven the sequential improvement in industrial activity in June 2021. This improvement has been continued in July 2021, as reflected in the manufacturing PMI which was back in the expansion territory after having contracted in June. Moreover, both GST collections and E-way bills have registered an uptick in July, further pointing at an economic rebound. However, the IIP remains significantly lower compared to the pre-pandemic levels and has a long road towards recovery.