IIP growth in H2 may positively surprise

With the damage the pandemic has created for all economic activities in the country in H1FY21, we were getting used to the downturn in almost every sphere of the economy. Thus when in September, the IIP entered the positive territory for the first time in the year (1.0%) buoyed by rise in all major parameters like mining (1.4%), manufacturing (0.4%) and electricity generation (4.9%) and followed it up by similar pattern in the next month also, it was thought that the industry has left behind the scourge and is back on track. However, the month of November took the industry below the benchmark line once again. It may be that when the November indices are finally revised, the marginal decline in the indices would be rectified.

In December, other than the mining sector, both manufacturing (weight in IIP: 77.6%) and electricity generation (weight: 7.99%) showed positive growth and pull up the IIP to clock 1.0% growth over December of last year. Cumulatively, however, IIP indicates a contraction of 13.5% in the first 9 months of the current fiscal with other indices in mining, manufacturing and electricity generation yet to move up the border line. As manufacturing comprises nearly 78% of IIP, it is interesting to look at the micro components of manufacturing during the period.
Let us separate the manufacturing segments with positive growth indications in December. The manufacturing of chemicals and chemical products, pharmaceuticals, medicinal chemical, rubber and plastic products show positive trend during the month. The indices that are linked with growth in steel industry, namely manufacturing of basic metals, fabricated metals, electrical equipment, machinery and equipment, motor vehicles and trailers are showing a rising trend.

Mention may be made of manufacturing of computer, electronic and optical products that has clocked a good growth during the month. There are five major segments under manufacturing with high weightage, namely manufacture of basic metals (wt:12.8), coke and refined petroleum (Wt: 11.77), chemicals (wt: 7.87), food products ((wt: 5.30) and pharmaceuticals (wt: 4.98). Three of these (other than food products and coke) showed positive growth in the month.

Under use-based classification, the capital goods industry, the significantly steel-intensive segment has clocked a positive growth of 0.6% in December, while infrastructure/construction goods segment with a weightage of 12.34% in IIP has been maintaining a steady growth since September. The consumer durable segment has been maintaining a positive trend since September except a marginal fall in November and has since moved up in December to clock 4.9% rise. The intermediate goods has clocked a positive growth of 0.4% in December following its first growth in October.

A few other segments under manufacturing having reasonably high weightage like food products is going to enter the positive territory when January 2021 data get published as the trend in the last few months are showing. The manufacturing of textile products and apparel, other non-metallic mineral products as well as manufacture of transport equipment other than vehicles and trailers and furniture manufacturing segments are still in the negative territories.

The author is former DG, Institute of Steel Development and growth