Economy

IIP shows improvement in May over April, but still in contraction mode

Our Bureau. New Delhi | Updated on July 10, 2020 Published on July 10, 2020

As the economy unlocks, factory output will be better, say experts

Industry is moving towards recovery path as the rate of contraction shrinks to over 37 per cent in May as against the sequential month of April when it was over 57 per cent.

However, the Ministry of Statistics & Programme Implementation (MoSPI) once again preferred to release only indices and not comparative chart in percentage term. But, it has given all the indices thus helping to access the change. “The index for the month of May stood at 88.4 as compared to 53.6 for April, indicating a graded pick up in industrial activity in the economy,” MoSPI said in a statement. Further, the number of units responding has improved in May as compared to the earlier months of lockdown. The weighted response rate at time of QE (quick estimate) of April 2020 was 87 per cent which is now revised upwards to 91 per cent at first revision.

 

However, the Ministry clarified that as mentioned in the press release for the IIP for April, it may not be appropriate to compare the IIP for May with those of months preceding the Covid-19 pandemic.

Industry has a share of nearly 30 per cent in the overall GDP (Gross Domestic Product). Improvement in industry augurs well for the overall economy. Initially, it was estimated that overall GDP contraction during the first three months — that is April-June of FY21 — will be as high as 25 per cent, but with agriculture showing good progress and improvement in some sectors of services combined with better show on the industrial front, the contraction rate is likely to come down. Commenting on latest IIP numbers, Rajani Sinha, Chief Economist & Head Research at Knight Frank India, said, while the IIP has contracted sharply in May on a year-on-year basis, it is still an improvement over April data.

There has been specifically significant improvements in the consumer non-durables segment. Going forward, as the economy unlocks there will be improvement in industrial production due to pent-up demand. But a meaningful pick-up in industrial production, would require further demand inducing stimulus measures from the government. “Any further policy rate cut by the central bank will also support industrial production. The time it takes to control the spread of Covid infection in India will have a strong influence on the industrial production trajectory going forward,” she said.

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Published on July 10, 2020
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