In April 2021, IIP measuring industrial output skyrocketed to a record high of 134.4 percent, (highest in the 2011-12 base period series) higher than CARE Rating’s estimate of 76 percent. This comes as no surprise since the core sector which accounts for nearly 40 percent weightage in the IIP basket witnessed an output growth of 56 percent in April 2021. The jump IIP figure for the month is primarily on account of a low base of (-)57.3 percent in April 2020.
Due to the disruptions in several production units caused by the COVID-19 pandemic and resultant nation-wide lockdown several establishments reported ‘Nil’ production and hence the year-on-year comparisons in growth must be interpreted with caution. The industrial output during the month recorded a contraction of 13 percent over March 2021.
Though the sectors and use-based classification of the IIP basket witnessed a robust growth on a y-o-y basis they have shown a contraction over the previous month. The highest contraction of 22 percent has been witnessed in the mining sector followed by 12 percent in the manufacturing sector. In the use-based category the output of capital goods witnessed a sharp de-growth of 23 percent.
By Economic Activity – April 2021
• Mining sector output grew by 37 percent in April 2021 highest in the 2011-12 compared with (-) 26.9 percent in April 2020. Hence the jump in mining output is purely on the back of a low base-effect. The mining sector output declined by 22 percent on a month-on-month basis. High level of coal inventories at the start of the current year and subdued demand from the power sector weighed on the mining sector output.
• Manufacturing which contributes to the highest weightage (77.6 percent) in the manufacturing index has witnessed an output growth of 197 percent on a y-o-y basis but a de-growth of 12.6 percent compared with March 2021. This can be ascribed to the localised lockdowns imposed by several states which disrupted manufacturing activity during the month.
- All industries in the manufacturing segment have recorded a y-o-y growth In April 2021 whereas they have witnessed a de-growth compared with the previous month.
- Double digit de- growth (m-o-m) was witnessed in the 14 out of 23 industries with notable fall witnessed in food products (15.6 percent), beverages (15.2 percent), leather and related products (14.1 percent), fabricated metal products, except machinery and equipment (20.7 percent), computer, electronic and optical products (18.6 percent), electrical equipment (20.8 percent), machinery and equipment (23.5 percent), and transport equipment (22 percent).
- Basic metals, comprising of the highest weight (12.8 percent) in the IIP index contracted by 14.3 percent over the previous month.
• Electricity output grew at a record pace of 38.5% in April 2021 aided by a low base-effect. It declined by 3.3 percent on a month-on-month basis as on account of low demand particularly from the commercial sector with curbs of varying degrees imposed across states.
IIP By Use-Based Classification – April 2021
• All sub-components based on the use-based classification have registered a year-on-year growth in April 2021 mainly due to a statistical push.
• Index of Capital goods output inched up to 82.4 in April 2021 compared with 7.0 in April 2020. The growth in this segment declined by 23.5 percent compared with March 2021 which is reflective of the weak investment sentiment in the economy.
• The Consumer durables output inched up from 5.5 in April 2020 to 112.4 in April 2021 and the consumer nondurables output grew by 95.7 percent on a year-on-year basis. Output in both the segments have de-grown by 12.9 percent and 10.9 percent respectively on a month-on-month basis. The performance of this segment in the coming months would be contingent on the pace of pick-up in consumer demand as the economy recovers from the harsh second wave of coronavirus.
• The y-o-y growth in Primary goods (37.1 percent), intermediate goods (209.2 percent) and infrastructure goods (564 percent) has been the highest in since the beginning of the 2011-12 base period series. All these segments have witnessed a de-growth over March 2021.
CARE Ratings’ View
The Industrial production for April 2021 as well as the coming months will be exaggerated and hence have to be viewed with caution. Low base effects will deliver high numbers in May for sure, and probably in June and July too. We should look at e-way bills, PMI and GST collections to get a better understanding of industrial activity especially so as we have had a lockdown in April and May in almost all states.
(The writers are Associate Economists at CARE Ratings)