Article:
The National Statistical Office (NSO) has recently released data underscoring a continued drop in India’s Industrial Production or factory output for the fifth consecutive month – a harsh reality of the ongoing pandemic. However, a slight sequential improvement has been noted as lockdown restrictions abate.
Details of the Decline
The Index of Industrial Production (IIP) contracted by 29.2% from April to July, contrasting starkly with a growth of 3.5% during the same timeframe last year. The growth rate for July 2019 registered at 4.9%. This major drop can be traced back to the persistent slump in sectors such as manufacturing, mining, capital goods, and consumer durables.
Contraction Data Across Various Sectors
With the exception of consumer non-durables, all other industry sectors witnessed contraction during July. The manufacturing sector, which holds a substantial weight of 77.6% in the IIP, slumped by 11.1% from a preceding contraction of 16.0% in June.
On a positive note, consumer non-durables or Fast Moving Consumer Goods (FMCG) marked a growth of 6.7%. Similarly, the electricity output that had contracted by a double-digit figure of 10.0% in June, improved slightly by contracting only by 2.5% in July, signifying the best sequential improvement. Trends imply electricity could be the next sector, apart from consumer non-durables, to move into positive territory soon.
Reflecting Similar Trends
The descent in industrial growth mirrors trends in other high-frequency indicators for July. As an example, India’s Manufacturing Purchasing Managers’ Index (PMI) in July was at 46 whereas it was marginally better at 47.2 in June. Any figure below 50 signifies a contraction in the industrial sector.
The Impact on GDP
The negative IIP for July will affect the expected contraction of the Gross Domestic Product (GDP) growth figures for the July-September quarter. India’s GDP growth contracted by a record 23.9% in the April-June quarter – the worst performance among the G20 nations.
About the Index of Industrial Production (IIP)
The IIP is an important indicator that tracks changes in the volume of industrial product production over a specific period. It is released monthly by the NSO, which is the central statistical office of the government. The IIP calculates the growth rate of broad sectors such as mining, manufacturing and electricity and use-based sectors like basic goods, capital goods and intermediate goods.
Significance and Utilization of IIP
The IIP plays a critical role in economic policy-making decisions. Various government bodies including the Ministry of Finance and the Reserve Bank of India rely on it. Additionally, it holds immense weight in the computation of quarterly and advance GDP estimates.