IIP sees slower YoY growth at 11.5% as low base effect wears

 July IIP sees slower YoY growth at 11.5% as low base effect wears off

As the low base effect slowly wears off, industrial production in India expanded by 11.5 percent year-on-year (YoY) in July, down from 13.6 percent in June.

Measured by the Index of commercial Production (IIP), data which was released by the Centre on September 10, industrial output has maintained significant growth from March, 2021, aided by a unbroken low base effect. Case in point, industrial production rose by 28.6 percent in May and a huge 134 percent rise in April.

Experts said the indices for the present months in 2021 aren’t strictly comparable an equivalent months from 2020, when the nationwide lockdown was fully force and a majority of factories weren’t operating.

Consequently, there have been many units which reported ‘Nil’ production, affecting comparison of the indices for May 2020 and should 2021. “The growth rates over corresponding period of previous year are to be interpreted considering the weird circumstances on account of COVID 19 pandemic since March 2020,” the govt said.

However, this effect is now slowly wearing off as industrial production is now being calculated supported their annual differences with months after the primary wave was controlled, and lockdowns were lifted.

Manufacturing growth continues

In July, the manufacturing sector saw output increase by 10.5 percent, at a pace slower than the 13 percent rise in June. It had jumped by 34.5 percent in May and nearly 200 percent in April. Compared to July 2019, manufacturing output was lower by 2 percent.

Manufacturing had been in freefall for many of 2020 given the series of total lockdowns implemented at the national and regional levels. But inherent stress within the sector had appear even before the pandemic hit.

In July, 20 of the 23 sub-sectors within manufacturing posted a year-on-year growth, up from 17 in June. Interestingly, the manufacturing of pharmaceuticals and medicinal chemicals continued to ascertain a contraction in July, aside from furniture and tobacco.

Moneycontrol had earlier reported that while Q1FY22 is predicted to ascertain an outsized manufacturing growth, low base effect or otherwise, experts have warned it’ll not paint a sensible picture of the world .

The crucial capital goods segment, which denotes investment in industry, rose by 29.5 percent in July. It had risen by a slower margin of 26.6 percent in June, after a 78.2 percent rise in May and a huge 1077 percent rise in April.

Going forward

When compared with July 2019 however, the economic output was just 0.3 percent less. “The data reveals that the economic output in July 2021 is now 97.9 percent of February 2020. It had fallen to 94 percent of February 2020 level in April 2021. We believe that it’ll take a short time for the economic output to recover the grounds it’s lost thanks to the impact of COVID 2.0,” Sunil Kumar Sinha, Principal Economist at India Ratings and Research (Ind-Ra) said.

In the coming months, greater focus would then shift towards sequential growth momentum, especially with the onset of the festive season, consistent with QuantEco Research.

“Broadly we expect macroeconomic conditions to stay in favour of a broadbased recovery in industrial activity, as reinforced by other related high frequency indicators like GST, E-way bills, PMIs, Nonoil non-gold imports among others. Having said so, there are signs of some imminent downward pressure likely from the auto sector amidst production hurdles due to semiconductor shortages,” a note from QuantEco Research said.

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