IIP: Sixth Consecutive Month of Contraction

The IIP number remains in contractionary zone but continued its path to gradual recovery. The IIP contraction for the month of Aug’20 was reported at 8% as compared to 10.8% in the preceding month and 57.3% in the month of Apr’20. The pace of recovery has lost some steam, and this was largely expected as the effect of localised lockdown is getting reflected in Aug’20 numbers. The industrial production levels may continue to improve as the unlock phase is underway and more relaxations have been provided. The base effect too will remain supportive from here on.
Even as the industrial activity limped back to normalcy, all the three constituent sectors viz, Mining, Manufacturing and Electricity reported contraction in growth. The manufacturing sector degrowth came in at 8.6% for the month of Aug’20 as compared to 11.6% in the preceding month. From amongst the 23 industries forming part of the Manufacturing sector, three industries – tobacco products, basic metals and transport equipment reported positive growth rates. The contraction for mining and electricity sectors was reported at 9.8% and 1.8% respectively for the month of Aug’20. The use-based classification too reported a similar set of numbers for the month of Aug’20, with all the sub-heads reporting degrowth but the pace of contraction easing. The contraction in growth was the sharpest in Primary Goods, Capital Goods and Consumer Durables. The growth for Consumer Non-durables slipped into negative zone after two consecutive months of expansion.

The rate of contraction has eased but the effect of lockdowns and the lingering fear of the second wave of the pandemic may continue to restrict the ability of manufacturers to enhance capacity utilisation. The pent-up demand has been a confidence booster for manufacturers and may lead to further ramping-up the facilities in anticipation of a healthy festive season. The real test of the sustainability of growth green shoots would be the demand seen during and post the festive season. The lead indicator, manufacturing PMI numbers, has improved significantly based on new orders from both domestic and foreign buyers, but the manufacturers continued to report a decline in payrolls. The improvement in employment numbers from manufacturers as well as broader sections of the economy would be one of the first indications of a full recovery to pre-covid levels.



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