IIP: India Industrial Output Falls For Fourth Consecutive Month

India’s industrial output fell for the fourth straight month, led by weakness across most segments except consumer non-durable goods.

The Index of Industrial Production contracted by 16.6% in June over last year, compared to a revised contraction of 34% in May, according to data released by the Ministry of Statistics and Programme Implementation on Tuesday. For the first time since March, the government reverted to releasing the percentage change, after publishing only index figures in the past two months.

Economists polled by Bloomberg had forecast June IIP to contract by 21%.

In the April-June 2020 quarter, the index contracted by 35.9%. This is the weakest it has been on record, according to Rahul Bajoria, chief India economist at Barclays. “July will likely continue to see diminished activity relative to the year before, as a series of local lockdowns imposed by various federal governments hinder the normalisation of economic activity,” Bajoria said.

Devendra Pant, chief economist India ratings said while sequential improvement in June was on expected lines, economic activity hasn’t improved much in July and August and does not give confidence for quick recovery.

Sectoral Estimates

Among the three key sectors, manufacturing and mining saw weaker growth.

• Manufacturing output contracted by 17.1% in June compared to a contraction of 38.4% in May.
• Mining output contracted by 19.8% in June as against a drop of 20.5% last month.
• Electricity generation contracted by 10% compared to a contraction of 14.9% in May.

Aditi Nayar, principal economist at ICRA, said that pent-up demand contributed to the improved performance of certain categories of manufacturing in June-July 2020, which may not sustain in August especially in light of the extension of localised lockdowns in various states.

Industrial output, as classified by the end-use of goods, indicated growth in output of consumer non-durables but all other categories contracted. The pace of contraction eased compared to the previous month.

• Primary goods output contracted 14.6% in June compared with a contraction of 19.7% in May.
• Capital goods output contracted by 36.9% in June against 65.2% drop in the previous month.
• Intermediate goods output contracted by 25.1% compared with a drop of 40.6% in the preceding month.
• Infrastructure output contracted by 21.3% compared to a contraction of 40.7% in May.
• Consumer durables output contracted by 35.5% compared to a contraction of 69.4% last month.
• Growth in consumer non-durables output saw a growth of 14% from a contraction of 11.1% in May.

The sharp turnaround in consumer non-durables to a double-digit expansion in June 2020 is likely to have been driven by the rebuilding of inventories that were depleted during the lockdown months, and may not sustain at such high levels after the restocking is completed, Nayar said.