India’s industrial production contracted for the third-straight month in May, shrinking 34.7 per cent after a historic fall of 57.6 per cent in April as the Covid-19-induced lockdown almost froze all economic activitiy. However, the Index of Industrial Production (IIP) had begun shrinking even earlier, falling by 18.3 per cent in March, which saw only 7 days of shutdown.
With an unprecedented lockdown in force for most of April and May, the government on Friday again released only the index numbers for industrial production, and the numbers cited above are derived from them.
The government clarified that after reporting nil production in April, subsequent periods of conditional relaxations have led to a graded pickup in industrial activity in the economy. However, experts have urged against celebrating just yet.
"The IIP data for May 2020 confirms our conviction that economic activity hit a trough in April 2020, and will record an uneven recovery in the subsequent months. However, the rising infections and the imposition of localised lockdowns in many states, are raising red flags about the pace of normalisation that we should expect in the ongoing quarter. Economic activity is likely to tread a bumpy path in the coming months, in our view," said Aditi Nayar, principal economist at ICRA.
All the components of the IIP - mining, manufacturing and electricity - saw contraction on a smaller magnitude as compared to the previous month.
Manufacturing, which accounts for 78 per cent of the IIP, saw output fall 39.3 per cent in May, after a massive 67.1 per cent drop in the previous month. Inherent stress in the sector became in March, when output fell by 22.4 per cent.
"Quite clearly the lockdown and limited opening up affected production of all industries. Different state rules on transport and labour further exacerbated the situation. While non-essential goods were permitted for production challenges remained in logistics and labour," said Madan Sabnavis, chief economist at CARE Ratings.
All but one of the 23 sub-sectors within manufacturing posted year-on-year contraction. Buoyed by drug exports and orders for sanitizers and protective gear, pharmaceutical production managed to see growth of 2.45 per cent. In April, CARE Ratings showed that 12 sub-sectors, including vehicles, furniture, electrical equipment, and fabricated metals recorded contraction of more than 90 per cent while 19 such recorded contraction of more than 50 per cent.
The capital goods segment, which denotes investment in industry, contracted by 64.3 per cent after the more than 90 per cent decline in April. With this, production in the category completed it's 16th straight month in the red. Policymakers fear that with the government exhausting most efforts to open up even more sectors to easier foreign direct investment flows, the fate of capital goods production may take time to recover.
Consumer demand missing
Consumer durables remained a major casualty of the lockdown among user-based industries, recording a 68.5 per cent fall in production after April's near absolute 98 per cent drop. Even before the latest Covid-19 crisis, data from the beginning of the year showed that production of consumer durables had continued to drop, with March being the latest in a 10-month contraction spree. Consumer non-durables, which include many essential items, saw the narrowest contraction of 11.7 per cent after a near 50-per cent contraction in April.
Among user-based industries, the biggest pickup was displayed by infrastructure goods, the contraction in which halved to 42 per cent in May, down from 84.7 per cent in April, driven by cement and steel.
Mining activity also caved by 21 per cent, after March's 27 per cent fall. On the other hand, electricity generation managed to further stem the decline at 15 per cent, down from the already modest 22 per cent fall in April, as domestic demand shot up.