IIP: Industrial Output Drops In January

India’s industrial output declined in January over a year ago as mining and manufacturing sectors reported a drop in activity.

The Index of Industrial Production fell by 1.6% in January 2021 over last year, compared to a rise of 1.6% in December according to revised estimates. Twenty eight economists polled by Bloomberg had forecast January IIP growth at 1%.

Economic recovery remains sluggish, with industrial production returning to contraction in January, said Rahul Bajoria, principal economist at Barclays. Still, high frequency data are perking up for February and March, and the growth improvement remains on track, he added. However, Aditi Nayar, principal economist at ICRA, said IIP may continue to contract in February 2021. “After the rapid recovery seen till October 2020, the trend in the IIP has turned volatile in the last three months, suggesting that the economy has entered into a consolidation phase with an underlying momentum that is relatively subdued,” Nayar said.

Sectoral Estimates

Among the three key sectors, mining continued to lag and manufacturing activity fell after a spurt of growth over the past few months.

• Mining output contracted by 3.7% in January compared to a contraction of 4.2% in December.
• Manufacturing output contracted by 2% after a growth of 2.1% last month.
• Electricity generation rose by 5.5% from a growth of 5.1% previously.

Industrial output, as classified by the end-use of goods, indicated a contraction in three sectors.

• Primary goods output grew by 0.2% in January 2021 compared to a contraction of 0.1% in December 2020.
• Growth in capital goods output contracted by 9.6% after a growth of 1.5% in the previous month.
• Intermediate goods output growth rose 0.5% compared to a 2.2% increase last month.
• Infrastructure and construction goods output grew by 0.3% compared to a growth of 2.7% in December.
• Consumer durables output contracted by 0.2% compared to a growth of 5.7% in December.
• Consumer non-durables output fell 6.8% in January compared to a growth of 0.5% last month.

In particular, the slippage of consumer goods back into a contraction in January 2021 is a key disappointment, said Nayar. “We remain circumspect regarding the intensity of the rebound in consumption immediately after the vaccine rollout widens, as some categories of households may choose to rebuild the savings that they had drained during the lockdown and post-lockdown period,” she said.