Industrial recovery in volume terms turned out to be an aberration in October with the output again falling by 1.9 per cent in November despite a festival of lights 'Diwali' falling in that month, prompting economists to call for continuation of the stimulus package in the upcoming Budget.
Industrial output growth, as measured by the index of industrial production (IIP), was revised upwards to 4.19 per cent in October compared to 3.6 per cent estimated initially. IIP was almost flat in September after declining continuously since March. IIP growth had stood at 2.1 per cent in November, 2019.
For the first eight months of FY21, IIP declined by 15.5 per cent from a growth of 0.3 per cent in the same period the previous financial year. This means industrial output was anyway slowing down in the previous year, but the Covid-induced lockdowns caused it to shrink during April-November this financial year.
Indications of poor IIP data were already available in the form of core sector numbers and e-way bills. Output of the eight-industry core sector dropped by 2.6 per cent in November, as against the contraction of 0.1 per cent in September and 0.9 per cent in October. Core sector constitutes 40 per cent of IIP.
Rahul Gupta, head of research- currency, Emkay Global Financial Services, said," It was obvious that the industrial production will contract after the output in the eight-core sector slumped. Overall the industrial recovery continues to be uneven and fragile and will require the stimulus support to stay in momentum.”
Also e-way bill generation fell to 57.7 million in November compared to 64.2 million in October. Every goods and services tax (GST)-registered person has to generate e-way bills if he moves goods in a vehicle worth more than Rs 50,000. That way e-way bill generation gives a broad indication of movement of goods.
However, e-way bill generation again rose to 64.2 million in December, giving some hope that IIP may rise in the month.
"As expected, the pace of growth of many sectors has improved in December 2020, reflecting a waning of the unfavourable base effect, and pickup in demand after the temporary post-festive slack. With lead indicators such as electricity demand, exports, and GST e-way bill generation displaying a rebound in activity in December 2020, we anticipate a pickup in the IIP back to a growth of 2-4% in that month," said Aditi Nayar, principal economist at ICRA.
Rajani Sinha, chief economist at Knight Frank India, said with the daily Covid infection rate dropping, vaccines round the corner and the economy close to normalcy, the critical aspect will be at what level the growth momentum stabilises.
Of the three broad segments in IIP, manufacturing, which constitutes 78 per cent of the index, again shrank by 1.7 per cent in November after briefly growing by 4.1 per cent the previous month. Manufacturing in value terms is officially projected to decline by 9.4 per cent in gross value added in the current financial year against 0.03 per cent in the previous year, according to advance estimates. The fact that advance estimates came before IIP numbers for November showed that manufacturing may perform much worse than shown by advance estimates.
Mining output was down by 7.3 per cent against a drop of 1.3 per cent over this period.
It was electricity generation that gave some push to IIP by growing for the third consecutive month. It rose 3.5 per cent in November, albeit a bit lower than 4.2 per cent in October.
In the use-based categories, all segments showed contraction barring infrastructure and construction goods which too remained almost flat, showing just 0.7 per cent growth.
Capital goods which rose in October by 3.5 per cent again declined by 7.1 per cent in November. If the trend does not reverse in the coming months, it may effect other goods as well.
Consumer durables and fast moving consumer goods which rose by 18 per cent and 7 per cent in October again fell by 0.7 per cent each in November.
"Contraction in IIP is a cause of concern. It shows the weak demand in the economy," said Deepthi Mathew, economist at Geojit Financial Services.
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