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April factory output contracts as large number of units report nil production

Food inflation moderates 9.3% in May from 10.5% in Apr, led by fall in vegetable prices.

By: ENS Economic Bureau | New Delhi |
June 13, 2020 12:21:51 am
factory workers, industrial output Workers at a factory near Gill Road in Ludhiana on Friday.

Factory output contracted by a record 55.5 per cent in April as industrial activity came to a halt after a nationwide lockdown was imposed to combat the COVID-19 pandemic. While the percentage figures were not released and only the index values were issued as part of the data released by the government on Friday on the Index of Industrial Production (IIP), the year-on-year calculations of the index numbers translate into an implied fall of 55.5 per cent. Industrial activity had contracted by a 16.7 per cent in March.

These numbers show that the Gross Domestic Product for April-June quarter will be severely impacted as full industrial activity could not happen in April and May.

The government said it is not appropriate to compare the IIP of April 2020 with earlier months, as a large number of responding units have reported nil production during the month. Overall contraction is above its estimate of 35-40 per cent for month of April, and it is the sharpest since the inception of the 2011-12 IIP series, as per CARE Ratings.

Explained

Manufacturing, discretionary items lead slump

The sharpest contraction in industrial activity in April since the release of new IIP series would have a bearing on Gross Domestic Product for first quarter. The contraction was expected due to the nation-wide lockdown and a pick up in activity may take some time due to near term slump in demand in the economy. Output slumped across sectors, led by manufacturing, with discretionary items such as consumer durables recording the highest contraction.

Expectedly manufacturing sector was the hardest, recording a contraction of 64.2 per cent in April as compared to 20.6 per cent in March, followed by mining sector which contracted 27.4 per cent.

Electricity generation recorded a contraction of 22.6 per cent in April as compared to 6.8 per cent in March. Financial markets were expecting the sharpest contraction in April month, while many economists expect GDP to contract sharply in first quarter.

Stressing on nil output in many industrial units, the government said among the manufacturing units — which has a weight of 47.5 per cent in IIP — data captured from the responding units is around 61 per cent for the month of April, 2020, of which 50 per cent have reported zero production, in view of the lockdown. In a subsequent statement, the government had deleted these numbers.

The government did not release headline Consumer Price Index (CPI) based inflation rate, citing paucity of data due to the lockdown. However, food inflation in May was estimated at 9.69 per cent for rural areas and 8.36 per cent for urban areas. Overall food inflation based on Consumer Food Price Index moderated 9.3% in May from 10.5 per cent in April, led by decline in vegetable prices.

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