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Wednesday, August 10, 2022

Industrial production growth at 8-month high of 7.1% in April

On a sequential basis, industrial production recorded a decline of 9.2 per cent, with a contraction of 8.8 per cent in manufacturing output and 19.7 per cent contraction in mining output, the data showed.

Written by Aanchal Magazine | New Delhi |
Updated: June 11, 2022 1:08:06 am

Factory output grew to an eight-month high of 7.1 per cent in April, despite a high base, powered mainly by higher electricity and mining output, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI).

On a sequential basis, industrial production recorded a decline of 9.2 per cent, with a contraction of 8.8 per cent in manufacturing output and 19.7 per cent contraction in mining output, the data showed.

The Index of Industrial Production (IIP) had grown 2.2 per cent in March 2022. Compared with pre-Covid levels of April 2019, industrial output recorded a growth of 6.8 per cent and compared with February 2020 level, it grew by just 0.7 per cent.

While there are continuing question marks over the durability of the industrial sector recovery amidst festering inflation and an inclement external situation, the year-on-year growth in the IIP is projected to surge further next month on the back of a favourable base linked to the second wave of Covid-19.

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In absolute terms, the IIP stood at 135.1 in April 2022, up from 126.1 in April 2021, but lower than 148.8 in March 2022.

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Manufacturing output, which accounts for 77.6 per cent of the weight of the IIP, grew 6.3 per cent in April, even as mining and electricity grew 7.8 per cent and 11.8 per cent, respectively.

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In absolute terms, the index for electricity output was at an all-time high (2012 series) of 194.5, primarily driven by the sharp increase in electricity generation in the wake of shortages triggered by the heat wave that intensified across the country since late March. Experts said the base effect helped IIP reach an eight-month high, but the growth in consumer goods and capital goods output remained tepid relative to the pre-Covid levels.

“Although it is still too early to rejoice the April 2022 performance as the resilience of the industrial sector amidst raging inflation and adverse global geopolitical situation, the start to the fiscal 2023 has certainly been on a positive note. A comparison of the latest data with the pre-Covid production level (February 2020) indicates that the aggregate industrial output is higher than the pre-Covid level albeit by just 0.7%. However, the output levels of three use-based segments — capital goods, consumer durables and consumer non-durables — are still below the pre-Covid level,” India Ratings Principal Economist Sunil Kumar Sinha said.

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But concerns persist

There are concerns over the durability of the industrial sector recovery, amidst surging inflation and an inclement external situation. The IIP is projected to surge further in May on the back of a favourable base linked to the second Covid wave.

Aditi Nayar, Chief Economist, ICRA said, “Consumption remains tentative on the whole, with underlying unevenness. Led by pent-up demand, we expect services to outperform the demand for goods in the near term, with the latter further constrained by elevated prices. The weak showing of capital goods output relative to the pre-Covid level confirms our view that the uptick in capacity utilisation in Q4 FY2022 will not trigger a rapid private sector capacity expansion in light of the uncertainties generated by geo-political developments.”

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Among the use-based components of industrial output, all the six segments recorded growth after a gap of eight months, with consumer durables — indicator of consumption demand — recording growth after six months of being in negative territory. Despite the high base, four segments — capital goods (14.7%), primary goods (10.1%), consumer durables (8.5%) and intermediate goods (7.6%) — recorded growth in April, with the double-digit growth in the capital goods segment likely to have benefitted from the capex push of the government.

“The two segments namely consumer non-durables (0.3%) and infrastructure/construction goods (3.8%) appears to have suffered due to high base and recorded a tepid YoY growth. The paltry YoY growth in the consumer non-durables also alludes to the K-shaped recovery whereby households falling in the lower end of the pyramid are finding their real income being eroded disproportionately by the high inflation,” Sinha said.

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First published on: 10-06-2022 at 05:44:34 pm

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