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Friday, September 18, 2020

Factory output shrinks for 4th straight month

Manufacturing sector, which has a weight of 77.6 per cent in IIP, contracted by 17.1 per cent in June.

By: ENS Economic Bureau | New Delhi | August 12, 2020 3:00:04 am
Apart from the phonemakers, nearly 40 electronic component manufacturers had also applied to set up new units or expand existing plants under the PLI scheme. (File)

Factory output continued to remain in the negative territory for the fourth consecutive month, contracting by 16.6 per cent in June, though it recorded a sequential improvement over last month’s revised contraction of 33.9 per cent, data released by National Statistical Office (NSO) on Tuesday showed. Cumulatively, Index of Industrial Production (IIP) contracted by 35.9 per cent in the April-June quarter, as against growth of 3 per cent last year, with the deepest contraction seen in consumer durables (67.6 per cent), capital goods (64.3 per cent) and manufacturing (40.7 per cent).

Barring consumer non-durables, a proxy for fast moving consumer goods, that improved due to stocking up of inventories, all other sectors including manufacturing, mining, primary goods, capital goods contracted in June due to the impact of the COVID-19 pandemic on overall economic activity. A graded opening up of the economy though was reflected in a sequential improvement in manufacturing, capital goods, consumer output.

Manufacturing sector, which has a weight of 77.6 per cent in IIP, contracted by 17.1 per cent in June from a contraction of 38.4 per cent in May. Output of consumer durables fell 35.5 per cent in June as against a decline of 69.4 per cent the previous month. Production of capital goods, a proxy for investments, fell 36.9 per cent in June as against a decline of 65.2 per cent in the previous month.

However, economists do not see the pickup in economic activity sustaining in July and August to term it as an overall recovery amid localised lockdown in various states and impact of pent-up demand withering away. “Sequential improvement in June 2020 was on expected lines. However, the economic activities haven’t improved much in the month of July and August and do not give confidence for quick recovery. Ind-Ra believes the economy to contract at least by 5.3%. Moreover, all four quarters are expected to have negative growth,” Devendra Kumar Pant, chief economist, India Ratings & Research, said.

“The pace of contraction of various lead indicators, such as the output of Coal India Ltd, electricity consumption and GST e-way bills narrowed to single-digits in July 2020, which suggests that the de-growth in the IIP would also shrink in that month. Nevertheless, we continue to caution that pent-up demand contributed to the improved performance of certain categories of manufacturing in June-July 2020, which may not sustain in August 2020 especially in light of the extension of localised lockdowns in various states,” Aditi Nayar, principal economist, ICRA said.

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