Economy

At -10.4% in July, IIP contraction slows

Our Bureau New Delhi | Updated on September 11, 2020

Factory output contracted at slower pace in July 2020 at 10.4 per cent, reflecting the output improvement from the unlocking of the economy from June.

However, the latest print was much worse than the 4.9 per cent IIP growth recorded in July 2019.

The July 2020 Index of Industrial Production (IIP) contraction was slower than the contraction of revised 15.8 per cent in June 2020, 33.8 per cent in May and record 57.6 per cent in April 2020.

The latest IIP print is also in line with core sector output which showed signs of recovering as its contraction too slowed in July 2020 at 9.6 per cent, compared to (-) 12.9 per cent in June 2020. The eight core sector industries together account for 40 per cent weightage of IIP.

For July 2020, manufacturing output contracted 11.1 per cent while mining contracted 13 per cent and electricity generation contracted 2.5 per cent, official data released on Friday showed.

On the use-based classification, consumer non-durables was the only category posting a growth, although the pace of its expansion halved in July 2020.

 

Aditi Nayar, Principal Economist, ICRA, said that the contraction of 10.4 per cent posted by the IIP in July 2020 trailed ICRA’s expectation of a 9.0 per cent de-growth on account of a modestly weaker than anticipated performance of all the three sectors — mining, manufacturing and electricity.

“Based on the sharp, albeit base effect-led turnaround in the performance of the output of Coal India Limited, the further narrowing de-growth in generation of GST e-way bills, as well as the mild worsening in the contraction in electricity generation in August 2020, we are hopeful that the pace of contraction of the IIP could ease to 6-8 per cent in August 2020,” she said.

Madan Sabnavis, Chief Economist, CARE Ratings, said that the IIP print for July was on expected lines. One can expect the August IIP to be in negative zone too before some turnaround in September, he added.

FMCG positive

“IIP performance showed progress in July 2020 month-on-month. Only FMCG was positive, driven by pharma mainly. The lockdown impact in July was less severe. One can expect numbers to be better next month though negative,” Sabnavis said.

Sunil Kumar Sinha, Principal Economist, India Ratings, said that the July 2020 IIP data, as expected, shows further recovery in the factory output. Though in terms of year-on-year growth factory output growth is still negative 10.4 per cent, the negative growth is consistently declining since April 2020.

“This kind of trend has been observed in many other high frequency data as well. However, the data also shows that the sharp recovery witnessed in the month of May and June is now becoming somewhat flattish. Part of the reason is local/partial/weekend lockdown imposed in many parts of the country, often without much advance intimation. This is not allowing orderly recovery of economic activities,” he said.

Published on September 11, 2020

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