The Index of Industrial Production (IIP) in May 2021 came under pressure as industrial activities declined by 8% on a monthly basis due to the heightened restrictions.
When compared on a YoY basis, IIP in May 2021 grew 29% YoY. However, it may not be an ideal comparison due to the lower base of last year when the entire country was under stringent lockdown post-breakout of the pandemic.
And, it would be ideal to compare May 2021 data with May 2019 to derive the ideal comparison.
Still Below Pre-COVID Levels
When compared on a 2-year CAGR basis, the level of industrial activities remains below pre-COVID levels. IIP growth contracted by (-7%) in May 2021 as against the levels of May 2019. Activities across all the major IIP components like manufacturing (IIP weight: ~78%), mining (IIP weight: ~14.4%), and electricity (IIP Weight: ~8%) declined when compared on a 2-year CAGR basis.
On a sectoral basis, mining activities were down 1.9%, manufacturing shrunk by 16.4%, and electricity production was down by 8.5% when compared with May 2019 levels. Among the other segments, consumer durables and capital goods contracted over 20%. The contraction was modest (0-5%) in consumer non-durables, infrastructure, and intermediate goods segments.
Comparison on a 2-year CAGR basis indicates that activity levels continue to remain below pre-COVID levels. However, when compared with March 2020, industrial activities grew by 29.3% during May 2021. It signifies that the impact of the second COVID-19 wave on industrial activity has been much less than the first lockdown.
Muted Domestic Sentiments
Industrial activities continue to remain below pre-COVID levels at a time when India's exports are touching record highs. During May, India’s merchandise exports were estimated at $32.21 billion in May 2021, managing to grow at 7.9% as compared with May 2019.
Despite stronger growth in exports, the industrial activities have shrunk in May. It is a clear indicator of persisting weakness in domestic demand.
Expect Recovery From June Onwards
Weaker industrial activities are expected to rebound in June as restrictions have started to ease. While exports have remained strong, some domestic indicators also pointed at a turnaround. High-frequency indicators like car sales, exports, electricity generation, etc., gathered momentum from mid-June, owing to unlocking. It should reflect in IIP numbers in the upcoming months.