Factory output shrinks for 2nd month in row at 3.6%

This is the sharpest contraction in industrial production in six months

Industrial production in February declined for the second month in a row at a faster rate of 3.6 per cent, than the 0.9 per cent in the previous month. This could have dampening impact on the overall economic growth during the fourth quarter of 2020-21.

This is the sharpest contraction in factory output witnessed over the past six months.

Factory output, as measured by the Index of Industrial Production (IIP), had grown at a 16-month high of 5.2 per cent a year ago, which was the month before the lockdown was imposed in the last week of March 2020. Taking that into consideration, the high base effect may also have accentuated de-growth in IIP.

The cumulative decline during Aprilfebruary (2020-21) was 11.3 per cent, compared to a growth rate of 1 per cent during the same period a year ago.

The November and January numbers saw a slight upward revision to -1.6 per cent and -0.9 per cent, from -2.1 per cent and 1.6 per cent, respectively, according to data released by the Ministry of Statistics and Programme Implementation.

“The data trend of the past few months, therefore, reinforces the view that the uptick witnessed in the months of September 2020 and October 2020 was more on account of a combination of festive and pent-up demand, and we are still far from witnessing a sustained recovery,” said Devendra Kumar Pant, chief economist at India Ratings.

Manufacturing sector output, which accounts for more than 77 per cent of the entire index, saw de-growth of 3.7 per cent in February from 3.8 per cent growth a year ago.

Similarly, mining activity, which accounts for over 14 per cent of the entire index, contracted 5.5 per cent as compared to a 9.6 per cent growth rate last year.

Growth in electricity generation stood at 0.1 per cent in February, plummeting from growth of 11.5 per cent in the same month last year.

Madan Sabnavis, chief economist at CARE Ratings, said the major mover of the index was consumer durables, especially auto and electronic items such as mobiles and computers.

Consumer durables output rose to 6.3 per cent in February, from a decline of 6.2 per cent a year ago. “A negative base effect has helped push up growth this month,” Sabnavis said.

However, capital goods output, which is reflective of the investment scenario, contracted 4.2 per cent, in comparison to the 9.6 per cent slide a year ago.

Intermediate goods contracted 5.6 per cent in February, compared to a 23 per cent rise a year ago, while consumer nondurables output shrunk 3.8 per cent in February, compared to de-growth of 0.3 per cent a year ago. Infrastructure/construction goods saw contraction of 4.7 per cent, compared to 2.8 per cent growth in February last year.

Pant said the production level of primary, intermediate, and infrastructure goods — which had breached pre-covid levels in January 2021 — once again slumped below the same in February 2021.

“Growth patterns of primary and intermediate goods, the two leading indicators of industrial production, are pointing towards lacklustre industrial performance in the short-to-medium term. This also means the government and the Reserve Bank of India will have to continue supporting demand,” Pant said.