Industrial production up 3.6% in Oct as manufacturing, consumer goods sectors recover

The consumer durables segment, which mainly includes white goods, grew 17.6% in October as against a contraction of 18.9% in the same period a year ago.
Industrial Production
Industrial Production
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Registering growth for the second straight month, industrial production rose to an eight-month high of 3.6 per cent in October on the back of recovery in manufacturing, consumer goods and power sectors.

The manufacturing sector, which has a weightage of 77.6 per cent in the IIP, recorded a growth of 3.5 per cent in October. In the year-ago period, the sector had a contraction of 5.7 per cent, according to data released by National Statistical Office (NSO) on Friday.

As per the use-based classification, the consumer durables segment, which mainly includes white goods, posted an impressive growth of 17.6 per cent in October whereas it was a contraction of 18.9 per cent in the same period a year ago.

Electricity generation sector recorded an impressive growth of 11.2 per cent in October while output of mining sector contracted by 1.5 per cent during the same period.

The IIP had contracted by 6.6 per cent in October 2019.

The industrial production witnessed a 5.2 per cent growth in February this year. Thereafter, it entered the negative territory in March and remained in the contraction zone till August. In September, there was a marginal growth of 0.5 per cent.

On March 25, the government had imposed a lockdown to contain the spread of COVID-19 infections and that had also disrupted economic activities. However, with the gradual relaxation of restrictions, there has been relative improvement in the economic activities.

Rating agency Icra's Principal Economist Aditi Nayar said that while the IIP growth stood at an eight month-high and displayed its best performance since the pandemic struck, the pace of the improvement in October 2020 was feebler than expected.

"The 3.6 per cent rise in the IIP in October 2020 trailed our expectation of a sharper growth of 5.5 per cent, that we thought would be driven by the building up of inventories prior to the festive season," she said.

Further, Nayar said that a variety of available indicators such as output of coal, electricity, non-oil exports and GST e-way bills have revealed that the pace of growth flagged in November 2020. This is account of a combination of an unfavourable base effect, fewer working days related to the shift in the festive calendar as well as some slack after the satiation of pent-up demand, she added.

As per the NSO data, output of capital goods -- a barometer of investment -- grew 3.3 per cent in October. There was a contraction of 22.4 per cent in the year-ago month.

Consumer non-durable goods production grew 7.5 per cent while it was a contraction of 3.3 per cent in the year-ago period. The 'infrastructure/ construction goods' segment of the IIP posted a growth of 7.8 per cent in October 2020.

However, the primary goods segment posted contraction of 3.3 per cent during the month under review.

The IIP for the April-October period contracted by 17.5 per cent, as per the data. It had registered a growth of 0.1 per cent during the same period last fiscal.

India Ratings and Research's Principal Economist Sunil Kumar Sinha said that manufacturing activities are gradually reaching the pre-COVID-19 level and are now just 2.6 per cent lower than the February 2020 level.

"No doubt two consecutive months of positive IIP growth is a good sign for the economy, India Ratings and Research (Ind-Ra) is only cautiously optimistic and may wait for few more months to believe that economy is firmly on a path of recovery since in the past IIP growth, more than once, has collapsed after couple of months of good growth," he said.

Anand Rathi Shares & Stock Brokers' Chief Economist and Executive Director Sujan Hajra said, "IIP-Oct'20: Positive surprise but unlikely to continue".

According to Millwood Kane International's Founder and CEO Nish Bhatt, high stimulus, government spending, low rates, and easy liquidity along with positive IIP and GDP growth has ensured a quick recovery post the pandemic-led chaos.

"The strong recovery is expected to be durable and hopefully, we will see pre-COVID-19 level growth in a few quarters," Bhatt added.

Motilal Oswal Financial Services' Chief Economist Nikhil Gupta said that overall, better-than-expected growth in IIP in October might have just been a case of high festive demand and whether the growth momentum continues is yet to be seen.

The Quick Estimates of Index of Industrial Production (IIP) are released on 12th of every month or previous working day if 12th is a holiday with a six-week lag.

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