IIP data: Industrial production growth scales eight-month peak of 3.6% in October

Industrial production growth scaled an eight-month peak of 3.6%, year-on- year, in October, driven by inventory building to cater for festive demand. While the recovery in October is better than the 0.5% rise in September, which had recorded the first expansion since February, it came on a favourable base (IIP had contracted by 6.6% in October 2019).

Consequently, analysts advise caution in interpreting the latest rebound. The strength of the recovery will be known if it outlasts the festive season through December. Nevertheless, the latest rise is an encouraging sign, they concurred.

Capital goods output reversed a 21-month slide in October, although it rose by only 3.3%, still reflecting gloomy investment climate.

Consumer durables output, however, jumped by 17.6%, y-o-y, in October, against just 3.4% in the previous month. This was the second rise after 15th straight month of contraction. Non-durables saw a 7.5% increase in October, against 2.5% in September.

Manufacturing rose 3.5% in October, the first increase since February, while electricity output growth hit an eight–month peak of 12.2%, compared with 4.9% in September. However, mining slipped back into contraction, with a fall of 1.5% in October, against a 1.4% rise in the previous month.

Aditi Nayar, principal economist at Icra, said the healthy improvement in the performance of consumer goods is driven by festive demand. “However, the benefit provided by the low base, especially for consumer durables, cannot be ignored. In our view, the underlying strength of demand remains mixed, and is still tentative in some sectors,” she added.

Nayar said several indicators, such as output of coal, electricity, non-oil exports and GST e-way bills, suggest that the pace of growth flagged in November. Against this backdrop, there could be a drop in the IIP growth in November; a mild contraction can’t be ruled out as well.

India Ratings principal economist Sunil Sinha said, “Although 14 out of 23 industry group having 74.1% weight in manufacturing IIP had positive growth in October 2020, production of only 10 industry group having 39.8% weight breached February 2020 production level.”

Sinha expressed “cautious optimism” and chose to wait for “few more months to believe that economy is firmly on a path of recovery since in the past IIP growth, more than once, has collapsed after couple of months of good growth”.