IIP growth in July declines to 11.5% despite easing of Covid-19 curbs

Industrial growth slowed to 11.5 per cent in July against 13.5 per cent in June because expansion in the biggest segment, manufacturing, along with mining, saw deceleration despite easing pandemic-related restrictions.

Much of the slowdown was due to the normalisation of the base as industrial production in volume terms, as measured by the index of industrial production (IIP), contracted 10.6 per cent in July last year, slower than the 16.6 per cent in June that year.

However, all use-based segments except consumer durables have recovered to pre-Covid levels or are above that, proving that industrial activities are perking up, experts said.

The data came 10 days after another set showed that gross domestic product (GDP), largely driven by manufacturing and agriculture value added, grew 20.1 per cent in the first quarter this fiscal year on a low base.

In the IIP, manufacturing growth declined to 10.5 per cent in July against 12.8 per cent in June. Similarly, mining expansion fell to 19.5 per cent from 23.1 per cent. On the other hand, electricity growth rose to 11.1 per cent against 8.2 per cent. Cumulatively IIP growth stood at 34.1 per cent in the first four months against the fall of 29.3 per cent in the corresponding period last fiscal year. In sequential terms, manufacturing output rose 8.2 per cent in July.

“The healthy sequential increase benefited from easing restrictions and rising mobility, but was dwarfed by the continued normalisation of the base,” said Aditi Nayar, chief economist at ICRA.

She, however, said the July sequential change in the IIP was much lower than the corresponding 17 per cent change in the generation of e-way bills (under goods and services tax, or GST).

“We believe GST e way bills represent continued inventory clearance as state-wise restrictions eased,” Nayar said.

Rahul Bajoria, chief India economist at Barclays, said the headline IIP was now short of July 2019 levels by a mere 0.3 per cent.

“We expect sequential growth recovery to persist broadly over the coming months,” Bajoria said.

Nayar said the manufacturing index in July 2021 (130.9) was nearly as high as the level in October 2020 (132.0) during last year’s festive season, which offers a glimpse into the strength of the revival after the second wave.

The important thing was that capital production grew 29.5 per cent in July, higher than the 26.6 per cent in the previous month.

Consumer durables growth declined to 20.2 per cent in July from 27.9 per cent in the previous month, and consumer non-durables continued to contract though the pace decelerated to 1.8 per cent compared to 4.3 per cent.

“The YoY contraction in consumer non-durables in July for the second month in a row struck a discordant note, although this was partly driven by an unfavourable base related to restocking after the first wave,” Nayar said.

Three of the 23 sectors showed a contraction in output in July, whereas it was six in the previous month.