Industrial Output Shrinks by 34.7%
India’s factory output shrank sharply for the third straight month in May, though at a slower pace than in April, signalling the severe impact of the nationwide lockdown on production processes. Data released by the Central Statistical Organisation (CSO) showed the index of industrial production (II
Published -
Jul 11, 2020 6:57 AM
India’s factory output shrank sharply for the third straight month in May, though at a slower pace than in April, signalling the severe impact of the nationwide lockdown on production processes. Data released by the Central Statistical Organisation (CSO) showed the index of industrial production (IIP) in May contracted by 34.7% against 57.6% in April. Recent leading indicators for June have signalled a quicker normalisation of economic activity, coinciding with the relaxation of lockdown restrictions on June 1, but the latest surge in Covid-19 cases and renewed curbs may delay the recovery. June output declined across sectors, with manufacturing, mining and electricity contracting 39.3%, 21% and 15.4% respectively. Within manufacturing, except pharmaceuticals, all sectors showed negative growth, including food products. All sectors according to use-based classification also showed the same trend, including consumer goods sector which dipped 68.5% in May, even as consumer non-durables narrowed the contraction to 11.7%. Rajani Sinha, Chief Economist & Head Research at Knight Frank India said, “While the IIP has contracted sharply in May on a yoy basis, it is still an improvement from April data. There has been specifically significant improvement in the consumer non-durables segment. Going forward, as the economy unlocks there will be improvement in industrial production due to pent up demand. But a meaningful pick-up in industrial production, would require further demand inducing stimulus measures from the government. Any further policy rate cut by the Central Bank will also support industrial production. The time it takes to control the spread of COVID infection in India will have a strong influence on the industrial production trajectory going forward”. Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services stated, “Just like in previous two months, the decline in IIP was led by across-the-board contraction in all the major components. Infrastructure/construction activities and capital goods production still declined in the range of 40-60% and consumer durables contracted more than two-thirds in May'20. Going ahead, while Jun’20 appears to be a far better month, we expect IIP to continue declining for another 3-4 months. Jun'20 IIP is likely to have contracted by another 20-30%.”
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