India / Industrial output index contracts 34.7% in May

New Delhi: The index of industrial production (IIP) plunged to 88.4 in May from 135.4 a year before, according to official data released on Friday. This represented a 34.7% contraction, but government sources cautioned against making the year-on-year comparison, saying the May 2020 index may undergo significant revision, including more inputs.

The year-on-year contraction in output was recorded at 57.6% (revised) in April. The government, however, said the May IIP data indicated “a graded pickup in industrial activity in the economy. Industrial production had shrunk 18.3% y-o-y in March when the lockdown was announced, but it was only in April when the first full-month impact of it was experienced by industry. The IIP is expected to recover substantially in June, as lock-down-related curbs were lifted, facilitating the resumption of manufacturing.

The government didn’t announce the rate of IIP contraction and just released the index reading for May. Senior government officials also highlighted that any comparison with the (year-on-year) growth rates for earlier months would be inappropriate, given the exceptional circumstances. Analysts, too, cautioned against reading too much into the latest data. In May last year, industrial output had risen 4.5%.

In a statement on Friday, the National Statistical Office highlighted: “In view of the preventive measures and announcement of nation-wide lockdown by the government to contain spread of Covid-19 pandemic, majority of the industrial sector establishments were not operating from the end of March, 2020 onwards. This has had an impact on the items being produced by the establishments during the period of lockdown and the subsequent periods of conditional relaxations in restrictions.”

Not surprisingly, consumer durables saw a 68.5% slide in May and capital goods output was down by 64.3%. Consumer non-durables, however, witnessed only a 11.7% fall in May, thanks to the easing of curbs on the supply of essential items. Manufacturing contracted 39.3% in May, while mining dropped by 21% and electricity by 15.4%.

Before the pandemic started to spread, however, industrial production growth scaled a 16-month peak of 5.2% (revised) in February, suggesting a fragile industrial recovery. But two critical segments — capital goods and consumer durables — had still continued to contract.

Rahul Bajoria, chief India economist at Barclays, said: “We continue to expect the economy to experience a rough patch through Q2 (April-June), though signs of green shoots, especially in the rural economy, are starting to appear as we enter July. The monsoon season has been above par, boosting kharif (summer) crop, which is off to a very strong start. Tractor sales have been robust, expanding by 20% yoy in June.” That said, the pick-up in rural activity is at best a mitigating factor, and GDP growth could clock a contraction of 22.2% y-o-y in the June quarter, he added.