IIP: India Industrial Output Continues To Contract In July

India’s industrial output contracted for the fifth consecutive month in July led by a fall in production of consumer durables and capital goods.

The Index of Industrial Production contracted 10.4% in July 2020 compared to a year ago, according to official data released by the government. The index had fallen 15.7% in June.

The quick estimates for July 2020, were compiled at a weighted response rate of 87%, according to an official statement. Thirty three economists polled by Bloomberg had forecast an 11.8% fall in industrial output in July.

Despite a consistent decline in pace of contraction, the sharp recovery witnessed in the month of May and June is now becoming somewhat flattish, said Sunil Kumar Sinha, principal economist at India Ratings. This is partly because of local lockdowns imposed in many parts of the country, often without much advance intimation, he said.

Despite encouraging trends, the process of industrial recovery will take a while and require sustained policy support, Sinha said.

It may not be appropriate to compare the IIP in the post-pandemic months with the IIP for months preceding the pandemic, the statement said.

Sectoral Estimates

All three key sectors contracted in July. In manufacturing, of the 23 industries, except for tobacco and pharmaceuticals, all of them contracted in July.

• Mining output fell 13% compared to a contraction of 19.6% in June.
• Manufacturing output fell 11.1% from a contraction of 16% the previous month.
• Electricity generation fell 2.5% after a contraction of 10% in June.

Industrial output, as classified by the end-use of goods, showed that output of consumer non-durables rose for a second consecutive month. All other classifications continued to see a fall.

• Primary goods output growth fell 10.9% in July, compared to a contraction of 14.5% in June.
• Capital goods output fell 22.8% from a contraction of 37.4% last month.
• Intermediate goods output fell 12.5% in July, after falling by 23% earlier.
• Infrastructure and construction goods output fell 10.6%, from a contraction of 18.8% previously.
• Consumer durables output fell 23.6% compared to a fall of 34.25% in the preceding month.
• Consumer non-durables output grew by 6.7% in July, after growing by 14.3% in June.

While consumer non-durables remained the only category posting a growth, the pace of its expansion halved in July 2020, suggesting that restocking of inventory lost some steam, said Aditi Nayar, principal economist at ICRA. Despite continued improvements, capital goods and consumer durables underperformed the other categories in July 2020, reiterating that the discretionary portion of consumption and investment will recover from this crisis with a substantial lag, according to Nayar.

In August 2020, the pace of contraction of the IIP could ease further to 6-8%, according to her estimates.