IIP: Back in Expansionary Zone

The IIP numbers reported expansion in industrial activity after witnessing contraction for six consecutive months. The IIP growth for the month of Sep’20 was reported at 0.2% as compared to -7.4% in the preceding month and 57.3% in the month of Apr’20. The growth number was healthy not only on a sequential basis but also on y-o-y comparison; the IIP growth for Sep’19 was reported at -4.6%. The recovery in industrial activity was mostly on expected lines, as was discussed in the previous note the gradual relaxations from pandemic related lockdowns and positive base effect were the key factors supporting the IIP growth.

Out of the three constituent sectors of IIP, two, Mining and Electricity, reported positive growth while Manufacturing  growth continued to report contraction. Even as the manufacturing growth remained in negative zone, there was a marked improvement on a sequential basis. The growth for manufacturing sector came in at -0.6% for the month of Sep’20 as compared to -7.9% in the preceding month. From amongst the 23 industries forming part of the Manufacturing sector, ten reported positive growth as compared to three in the preceding month. The growth for mining and electricity sectors was reported at 1.4% and 4.9% respectively for the month of Sep’20.

The use-based classification numbers too reported a similar trend for the month of Sep’20. Out of the six use based classification, three viz. infrastructure/construction goods, consumer durables and consumer non-durables reported positive growth. Primary goods, capital goods and intermediate goods reported degrowth, albeit at a marginal rate. Consumer durable reported expansion after a gap of 15 months.

The key macroeconomic indicator of IIP turning positive bodes well for the overall economic growth. The effect of pentup demand combined with the ongoing festive season is expected to keep the momentum intact, at least in the near term. The base effect turning supportive is another positive for the IIP growth numbers going ahead. The real test of the sustainability of growth green shoots would be the demand seen post the festive season. The lead indicator, manufacturing PMI numbers, has improved significantly based on new orders from both domestic and foreign buyers. The emergence of the second wave of pandemic (as witnessed in the western hemisphere) and reimposition of lockdowns is the near caveat that may potentially derail the growth engine.


Leave a Reply