Updated: December 11, 2021 1:07:10 am
Industrial output grew 3.2 per cent, the lowest in eight months, in October with an uptick in mining and electricity output. Subdued investment weighed on the Index of Industrial Production (IIP) despite festive demand, data released by the National Statistical Office showed on Friday.
Economists said weak consumption and investment trends imply that the heavy lifting to take the economy out of sluggish growth has to be done by the government. “Despite 25.3 per cent growth in GST collection and 7.5 per cent growth in core infrastructure sectors, October 2021 IIP growth was impacted by the base effect and grew 3.2 per cent only (October 2020: 4.5 per cent). The IIP growth has been very fragile and even festive demand was not able to uplift IIP growth in October 2021,” Devendra Kumar Pant, chief economist, India Ratings said.
The output of the manufacturing sector, which accounts for over three-fourth of the total weight of the index, grew 2 per cent in October as against 3 per cent in September and 4.5 per cent a year ago. Mining output rose 11.4 per cent in October against a 1 per cent contraction a year ago and power generation increased 3.1 per cent as against 11.2 per cent growth a year ago.
Among use-based Industrial classification, capital goods — an indicator of investment — contracted 1.1 per cent in October while consumer durables output contracted 6.1 per cent and consumer non-durables output grew just 0.5 per cent.
Capital goods production also declined 1.1 per cent in October 2021. Only primary goods (9.0 per cent) and infrastructure/construction goods (5.3 per cent) provided some support to growth. Overall industrial output is still below pre-Covid level, 99.6 per cent of February 2020.
“A contraction of 6.1 per cent for consumer durable and 0.5 per cent growth in consumer non-durable are testimony of weak demand conditions in the economy. Only the mining sector has shown good growth of 11.4 per cent … worrying trends are also emerging on the investment front too … industrial output is likely to follow the same trend as observed in the periodic labour force survey and weak private final consumption expenditure depicted in 2QFY22 GDP numbers. Omicron could be a disruptor in the coming months. Expect a weak set of IIP numbers in the rest of FY22. Weak consumption and investment trends imply that the heavy lifting to take the economy out of sluggish growth has to be done by the government,” Pant said.
The demand recovery is still being seen as tentative. Going ahead, IIP is expected to be sub-3 per cent. “Notwithstanding the upcoming festive season, consumer durables reported a y-o-y contraction for the second month in a row, and the pace of the same widened in October 2021, partly attributable to the supply side shortages constraining auto output. Moreover, consumer non-durables displayed a sub-1 per cent rise for the second consecutive month in October 2021, adding heft to the view that the demand recovery is as yet tentative,” Aditi Nayar, chief economist, Icra Ratings said.
“Even as the ongoing supply challenges in the auto sector persisted, the y-o-y performance of several other high frequency indicators deteriorated in November 2021, including electricity demand, GST e way bills, port cargo traffic etc. suggesting that economic activity lost steam after the festive season ended, with a satiation of pent up demand. Accordingly, the IIP growth may print sub-3 per cent in the just-concluded month, in spite of the low base (-1.6 per cent in Nov 2020),” she added.
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