Factory output contracted by a record 16.7 per cent in March as the impact of the nationwide lockdown to counter the COVID-19 pandemic reflected in sharp contraction of manufacturing, capital goods, consumer durables and consumer non-durables output, which is expected to translate into a sharply lower GDP growth for 2019-20 and a contraction in 2020-21.
For the full financial year 2019-20, the Index of Industrial Production (IIP) recorded a contraction of 0.7 per cent as against 3.8 per cent growth in the previous year.
Factory output growth was recorded at 4.6 per cent in February and 2.7 per cent in the same period last year. The data is likely to be revised due to lower response rate from the units from which data is collected, the National Statistical Office said.
Manufacturing sector output contracted 20.6 per cent compared to a growth of 3.1 per cent in the same month a year ago. Electricity generation declined by 6.8 per cent as against a growth of 2.2 per cent in March 2019. Mining sector output remained flat compared to a growth of 0.8 per cent earlier. Production of capital goods, an indicator of investment, declined by 35.6 per cent as against a contraction of 9.1 per cent in the same month last year.
As per use-based classification, primary good registered a contraction of 3.1 per cent, intermediate goods (-)18.5 per cent and infrastructure/construction goods (-)23.8 per cent this March over the same period last year.
The consumer durables output fell 33.1 per cent, while non-durables production slipped 16.2 per cent in March.
Economists said the fall reflected a pause in investment intentions and deferral of non-essential consumption and the drag on sectors such as manufacturing, construction, trade and hotels is going to continue in the coming months.
“With the y-o-y performance of many lead indicators of manufacturing and services portraying an unfavourable trend in the just-concluded quarter, driven by the COVID-19 related disruptions, GDP growth is expected to slide to 2.0 per cent in Q4 FY2020 from 4.7 per cent in Q3 FY2020, despite the anticipated improvement in agricultural GVA growth in that quarter. Overall, we expect that the GDP growth moderated to 4.3 per cent in FY2020,” Aditi Nayar, principal economist, ICRA, said.
“Given the likelihood of mismatches in labour availability as well as the possibility of supply chain disruptions, we expect the drag from sectors such as manufacturing, construction, and trade, hotels and transport etc, to linger for a large part of May 2020, with a further delay in the return to normalcy for a large cross-segment of these sectors.
“However, we continue to expect the healthy rabi crop and a pickup in government expenditure to provide some cushion to economic activity in Q1FY2021. ICRA projects Indian GDP to contract in a range of 16-20 per cent in Q1FY2021, which would translate to a contraction of 1.0-2.0 per cent in FY2021,” Nayar added.
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