IIP: Output Contracts For The First Time In Three Months

India’s industrial output contracted for the first time since September 2020 as the impact of an inventory build-up and festive demand waned.

The Index of Industrial Production contracted 1.9% in November 2020 over a year ago, compared to an increase of 4.1% in October as per revised data released on Tuesday. A Bloomberg poll of economists had forecast November IIP to contract by 1%.

The November data shows that the uptick witnessed in September and October was because of a combination of festive and pent-up demand and the recovery is still shallow and fragile, said Sunil Kumar Sinha, principal economist at India Ratings & Research.

Rahul Bajoria, chief India economist at Barclays, said while adverse base effects partly drove the decline, activity also moderated sequentially perhaps due to running out of inventory rebuilding-driven product demand.

Sectoral Estimates

Among the three key sectors, manufacturing and mining saw weaker growth, though electricity output grew over a year ago. Thirteen of 23 manufacturing industry groups saw a contraction in output in November.

• Manufacturing output contracted by 1.7%. in November compared to an expansion of 4.1% in October.
• Mining output contracted a steeper 7.3% in November compared to a 1.3% in October.
• Electricity generation rose by 3.5% in November compared to an 11.2% jump seen in October

Industrial output, as classified by the end-use of goods, indicated a contraction across five of the six industries.

• Primary goods output contracted by 2.5% in November compared to a 3.2% drop in October.
• Capital goods output contracted by 7.1% compared to a 3.5% increase in October.
• Intermediate goods output contracted by 3% compared to a 2% rise a month ago.
• Infrastructure and construction goods output rose by 0.7% compared to a steeper 9.9% increase the previous month.
• Consumer non-durables output contracted by 0.7% compared to a 7.1% rise in October.
• Consumer durable output contracted by 0.7% after an 18% increase in October.

In level terms, no use-based segment has either touched or surpassed the production level recorded in pre-Covid-19 period—that is February 2020, Sinha said.

With India set to begin it’s immunisation programme, Bajoria said that in terms of recovery in activity by sector, while manufacturing has enjoyed a decent run of gains, the contact-intensive services, such as hospitality, transport and tourism, will likely make major gains, given they are the last to come out of lockdown movement restrictions.