IIP: Contraction After Two Months of Growth

The industrial activity growth, as measured by IIP, contracted in the month of Nov’20 after growing for two consecutive months. The IIP growth for the month of Nov’20 was reported at -1.9% as compared to growth of 4.2% in the preceding month and 2.1% in the year ago period. The relaxations in lockdown have definitely helped the demand scenario, but the latest numbers indicate that the recovery is still at a nascent stage and the positive numbers of the preceding two months may be a function of favourable base effect. The growth for the Apr-Nov period of FY21 came in at -15.5% as compared to 0.3% for the comparable period of FY20.

Out of the three constituent sectors of IIP, two, Mining and Manufacturing, reported contraction in activity while Electricity growth reported expansion. The growth for manufacturing sector came in at -1.7% for the month of Nov’20 as compared to 4.1% in the preceding month. From amongst industries forming part of the Manufacturing sector, beverages, wearing apparel, paper & paper products, printing & reproduction of recorded media and furniture continued to report contraction in double digits. The growth for mining and electricity sectors was reported at -7.3% and 3.5% respectively for the month of Nov’20.

The use-based classification numbers too reported slowdown across segments, both capex and consumption demand representing indicators. The Primary goods growth has now remained in contraction for nine consecutive months. As the effect of pent-up and festive season demand diminished, the growth for Consumer Durables segment too slipped in the negative.


The industrial activity has seen a sharp improvement from the lows seen in IIP growth during the first half of FY21, an effect of the pandemic induced lockdown. Having said that, the recent numbers indicate that the effects of pent-up demand may be waning and a full turnaround to the base formed in the previous year and subsequent growth may still be some time away.

It was discussed in the previous month’s note that the real test of growth green shoots would be the demand seen post the festive season. The growth is not yet on firm footing and would require ongoing support from both fiscal and monetary policy. In this regard, both a supportive monetary policy and fiscal support through government spending would be critical for overall GDP growth.


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