IIP shrinks 10.4% as recovery slows

Recovery is flattening, needs sustained policy support, says economist.

Factory output contracted 10.4% in July 2020, in a year-on-year comparison of the Index of Industrial Production (IIP), released by the Centre on Friday. Mining and manufacturing shrunk 13% and 11% respectively, although electricity generation has recovered to a contraction of 2.5%.

Economists feel the recovery is slowing, noting that although the IIP’s July contraction is significantly better than the 57% plunge seen in April, it is only a mild improvement from the 15.7% y-o-y contraction seen in June.

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The IIP data shows that “the sharp recovery witnessed in May and June is now becoming somewhat flattish,” said Sunil Kumar Sinha of India Ratings, a unit of the Fitch group.

“Part of the reason is local/partial/weekend lockdown imposed in many parts of the country, often without much advance intimation. This is not allowing orderly recovery of economic activities,” Mr. Sinha said.

He noted that the IIP growth trend mirrors the GSDP weighted workplace mobility trend, which also flattened out in July and August after a sharp recovery in May and June, adding that “the process of industrial recovery will take a while and require sustained policy support.”

In its official statement releasing IIP data, the Ministry of Statistics and Programme Implementation repeatedly stated that, “It may not be appropriate to compare the IIP in the post pandemic months with the IIP for months preceding the COVID-19 pandemic.”

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The Ministry pointed out that a large number of industrial establishments were not operating from the end of March due to the lockdown, adding that industrial activity is now resuming with the lifting of restrictions.

The manufacture of pharmaceuticals, which saw 22% growth, and tobacco products which posted 6.1% growth, were the only two sectors in positive territory in July. The auto sector and paper and beverages manufacturing continued to see contractions over 30%. The declining trend in textile (-14.8%) and garment manufacturing (-28.7%) could be important from an employment perspective.

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