IIP: Third Consecutive Month of Contraction

The nationwide lockdown situation led to a contraction in IIP’s year-on-year growth numbers for the third consecutive month. After Apr’20, the lockdown continued in the month of May’20 as well. As such, it was expected that IIP numbers may continue to contract. The partial relaxation of lockdown measures led to easing in the pace of
contraction. The IIP contraction for the month of May’20 came in at 34.7% as compared to 57.6% in the preceding

The pace of contraction slowed as few industries resumed services, the initial effect of the same was seen in the
production of essential products. From amongst the 23 industries forming part of the manufacturing sector, the growth for pharmaceuticals, medicinal chemical and botanical products industry returned into positive growth zone after two months of contraction. The contraction rate for three key sectoral components Mining, Manufacturing and Electricity was reported at 20%, 39.3% and 15.4% respectively for the month of May’20. The official press release continues to mention that, “it may not be appropriate to compare the IIP for May 2020 with those of months preceding the COVID 2019 pandemic”. Thus, the official release indicates only the index numbers and has refrained from declaring the growth/contraction details.

A similar trend was witnessed in use-based classification as well, with the pace of contraction slowing in the month of May’20. The contraction in growth was the sharpest in Capital Goods and Consumer Non-durables, on the other hand, the contraction was slowest in Primary Goods and Consumer Durables.


The IIP was mostly on expected lines, with the lockdown situation impacting the production activity. As mentioned
earlier in the previous issue as well, the latest numbers need not necessarily reflect the severity of slowdown. The
actual impact of the pandemic on the manufacturing activity would be reflected in the IIP growth numbers for the
subsequent months. The production activity was earlier expected to recover in the month of June, with gradual
withdrawal of restrictions; but with the number of corona patients again being on the rise, the reversal in economic
activity may take longer than earlier anticipated. The lead indicator manufacturing PMI remained below 50, the
threshold index number indicating expansion. The pandemic is yet to subside at the global level as well, this has also
hurt the manufacturing industry as export demand too remains weak.



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