IIP: Industrial Production Contracted By 16.7% In March 
A worker stands against a wall outside a Tata Steel Ltd. plant in Jamshedpur, Jharkhand, India, on Monday, Feb. 11, 2019. Photographer: Anindito Mukherjee/Bloomberg

IIP: Industrial Production Contracted By 16.7% In March 

India’s industrial output contracted in March as the spread of the Covid-19 virus began to disrupt economic activity from the middle of the month. The full impact of a nationwide lockdown, which was imposed on March 24, will be visible only in the month of April.

The Index of Industrial Production fell by 16.7 percent in March over last year, the government’s statistical office said in a release on Tuesday. According to revised data for the previous two months, IIP grew by 2.08 percent in January 2020 and by 4.62 percent in February 2020. For March, data was released with the caveat that information flow from producing units was impacted due to the lockdown. As a consequence of the lower response rate, the quick estimates released are likely to undergo revision, the department said.

Still, the contraction in industrial output reported is worse than anticipated. Thirty one economists polled by Bloomberg had forecast a fall of 8 percent in March IIP.

All three key sectors, mining, manufacturing and electricity saw a contraction, although the fall in manufacturing was the steepest.

  • Manufacturing output contracted by 20.6 percent in March compared to growth of 3.2 percent in February.
  • Electricity generation contracted by 6.8 percent compared to growth of 8.1 percent in February.
  • Mining output was flat in March after it grew by 10 percent in February.

Industrial output, as classified by the end-use of goods, also showed a contraction in all categories. Capital goods and consumer durables saw the steepest fall in output.

  • Primary goods output contracted by 3.1 percent in March compared to growth of 7.4 percent in February.
  • Intermediate goods output growth fell by 18.5 percent compared with 22.4 percent growth in the previous month.
  • Capital goods output contracted by 35.6 percent in March against a contraction of 9.7 percent in the previous month.
  • Contraction in consumer durables continued by 33.1 percent compared to a fall of 6.4 from February.
  • Consumer non-durables output contracted by 16.2 percent after showing no growth in February.
  • Infrastructure and construction goods output contracted by 23.8 percent compared with 0.1 percent rise in February.

Not surprisingly, the extent of contraction is the most severe in the case of capital goods and consumer durables, highlighting the pause in investment intentions and deferral of non-essential consumption, said Aditi Nayar, principal economist at ICRA. Even consumer non-durables, which includes several essential items, witnessed a contraction in output in March 2020, as the lockdown interrupted production in several factories, she added.

FY20 IIP Growth At Historic Low

For the full financial year, IIP growth contracted for the first time since at least 1980-81. To be sure, the index for industrial production has seen changes over the years in composition and weightage based on changing trends in the Indian economy.

Industrial output over the April 2019- March 2020 period contracted by 0.7 percent as compared to a growth of 3.8 percent in the previous financial year. Industrial production was weak even before the spread of Covid-19 disrupted economic activity.

IIP grew by 0.9 percent between April 2019- February 2020 on an annual basis, but the sharp fall in March led to a contraction in output for the full year.

With the year-on-year performance of many lead indicators of manufacturing and services portraying an unfavourable trend in the just-concluded quarter, driven by the Covid-19 related disruptions, GDP growth is expected to slide to 2 percent in Q4 FY20 from 4.7 percent in the previous quarter, despite the anticipated improvement in agricultural gross value added growth in that quarter, said Nayar.

GDP data is due at end of this month.

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