New Delhi: Weakness in the country’s factory production, despite a low base effect, puts a question mark on the economic recovery, said a top economist as India’s factory output, measured as the Index of Industrial Production (IIP), grew by just 0.4 in December 2021 on a year-on-year basis, the lowest growth rate in the last four months.
"Lacklustre IIP growth puts a question mark on the current recovery. It also indicates that policymakers may have to take more measures to support industrial recovery as high commodity prices have made most inputs, particularly fuel and materials, quite expensive," said Sunil Sinha, Principal Economist of India Ratings and Research, a Fitch Group company.
According to the latest data released by the ministry of statistics and programme implementation on Wednesday, India’s industrial production recorded a growth of 5.4% in September 2021 over the growth recorded during the same month of 2020. Similarly, IIP recorded a growth of 5.2% in October and clocked a growth of 9% in November last year in comparison with the industrial production during November 2020. However, the IIP growth slumped to just 0.4% in December last year, as the index grew from 137.4 in December 2020 to 138.0 in December 2021.
As per the IIP Data, the manufacturing sector was the major drag accounting for 77.6% of weight in IIP. Sinha said despite a favourable base effect, mining growth in December 2021 showed a low growth of 2.6% (December 2020: negative 3.0%). The electricity sector witnessed a growth of 2.8% in December 2021 albeit on a high base (December 2020: 5.1%).
Cause of concern
What is even more worrying is that as per the use-based classification, three out of the six segments, such as capital goods, consumer durables and consumer nondurables recorded negative growth in December 2021.
"For consumer durables, this is the fourth successive month of negative growth. Even consumer non-durable growth after a few months of tepid growth has turned negative in December 2021," Sinha observed.
Sinha, who closely tracks macro-economic data and government finances, says his agency India Ratings and Research, has been voicing concerns about weak consumption demand for quite some time and has also been articulating it as a major risk to the economic recovery.
"India Ratings believes successive monthly data of industrial output is making it abundantly clear that consumption demand will need policymakers attention much more than hitherto being given if recovery is to become a sustainable one,” he said in a statement sent to ETV Bharat, adding the continued weakness in capital goods does not augur well.
The economist said that there were indications that finally private corporate investment was picking up but the same has yet to find a reflection in the IIP data. According to the data released on Friday, only primary (2.8%) and infrastructure and construction (1.7%) goods provided support to the overall IIP.
Industrial production tops pre-pandemic levels
Sinha says December 2021 industrial production data provides some relief when it is compared with the pre-COVID (Feb 2020) output levels. He said after March 2021, it is for the first time in December 2021 that the output levels of all the use based segments except capital goods have surpassed the pre-Covid levels.
"However, the risk is that it may again fall below the pre COVID levels in the coming months due to the impact of omicron as has been the case after the second wave of Covid," warned the economist.
Sinha said the industrial production was expected to be in the low single digits in the near term as it will be majorly driven by a low base effect.
