The National Statistical Office (NSO) on Friday reported that industry grew by 1.3 per cent in January as against 0.7 per cent growth in December and 0.6 per cent of de-growth in January last year.

However, experts say growth is mainly because of the base effect. Also, on a sequential basis (month-on-month) , there is no growth. They do not expect much growth in coming months.

The data reflects the growth in January was mainly on account of improved performance of mining and manufacturing sectors. The growth in the mining sector was 2.8 per cent against a contraction of 2.4 per cent in January, 2021. The manufacturing sector expanded by 1.1 per cent in January, compared to a contraction of 0.9 per cent in the year-ago month.

However, growth in power generation decelerated to 0.9 per cent against an expansion of 5.5 per cent in January 2021. In the April-January period, the IIP growth stood at 13.7 per cent against a contraction of 12 per cent in the corresponding period of 2020-21.

Aditi Nayar, Chief Economist with ICRA said that in line with previous trends, the sequential dip in manufacturing was smaller than the decline in GST e-way bill generation between December 2021 and January 2022, confirming the agency’s view that the third wave had a larger impact on mobility, as well as contact-intensive services, than the manufacturing sector. Accordingly, she said, “we expect the jump in manufacturing to be smaller in February than the spike in the daily average GST e-way bill generation to a fresh all-time high.”  

The disaggregated IIP data was rather mixed, with two use-based categories reporting a contraction (capital goods and consumer durables) in January and they displayed a deterioration in the YoY performance relative to the previous month (consumer durables and primary goods). Relative to the pre-Covid level of January 2020, the IIP displayed a mild 0.7 per cent rise, with lower output of consumer durables and non-durables as well as capital goods imposing a drag.

Capital goods output has sustained a contraction for the fourth consecutive month, although its pace eased in January 2022. However, the pickup in growth of infrastructure/construction goods in January is promising after the contraction in construction GVA in Q3 FY2022. 

Rajani Sinha, Chief Economist with Knight Frank India said that the recovery in January industrial production is uneven and is partly supported by the base effect. The momentum in manufacturing sector is positive for the economy. However, the persisting contraction in the capital goods production, which is a barometer of investment demand, indicates a weakness in private investments. Furthermore, “consumption demand in the economy continues to remain weak as indicated by the continual contraction in consumer durables. This will be a concern for the RBI amidst inflation worries,” she said.

According to Nayar, despite the easing of restrictions after the subsiding of the third wave, high frequency indicators point to a mixed trend in February. “Manufacturing is unlikely to rise as much as the surge in the daily average GST e-way bill generation in February 2022, especially given the weaker performance of the auto sector. With the modest uptick in electricity demand growth, amidst a dip in the YoY performance of Coal India Limited, we expect the IIP growth to remain sub-2 per cent in February,” she said.

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