March IIP expands 22.4% over low base, recovery in manufacturing

Cumulatively, India's industrial output shrunk 8.6 percent in FY21, as compared to a 0.9 percent contraction in FY20. Output shrank during 9 months in 2020-21.

May 12, 2021 / 06:48 PM IST
An employee works inside a small-scale locks manufacturing factory at Aligarh district in Uttar Pradesh. REUTERS/Parivartan Sharma

An employee works inside a small-scale locks manufacturing factory at Aligarh district in Uttar Pradesh. REUTERS/Parivartan Sharma

Industrial output in India expanded due to a low base effect in March, rising 22.4 percent after contracting 3.6 percent in February.

Measured by the Index of Industrial Production (IIP), data for which was released by the Centre on May 12, industrial output had been contracting since January. IIP had contracted by 0.9 percent in January after rising by 1.6 percent in December.

"The pace of the IIP's expansion in March 2021 was in the middle of our forecast range (17.5-25.0%). Given the low base of the lockdown, we believe it's more meaningful to compare the industrial performance in March 2021 with March 2019, which reveals a mild albeit sobering contraction of 0.5%," Aditi Nayar, Chief Economist at ICRA, said.

The latest rise in IIP is mainly attributed to the manufacturing sector which saw output increase by 25.8 percent. This comes on an extreme low base, since in March 2020 the country began its cycle of nationwide lockdowns. Back then, manufacturing output had slid by 22.8 percent.

In March, of the 23 sub-sectors within manufacturing, only 3 posted a year-on-year contraction, down from 17 in the previous month. Only manufacturing of tobacco products, refined petroleum and reproduction of recorded media saw a fall.


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On the other hand, electronics, electrical equipments, pharmaceuticals and motor vehicles saw the biggest growth, since these were the industries which were hardest hit in March, 2020 when the nationwide lockdown started.

Industrial output contracted during as many as 8 months in FY21. Industrial output contracted during as many as 8 months in FY21.

The contraction in manufacturing output had earlier widened to 3.7 percent in February, from January's 2 percent. Manufacturing had been in freefall for most of 2020 given the series of total lockdowns implemented at the national and regional levels. But inherent stress in the sector had become visible even before the pandemic hit.

Again due to a low base effect, the crucial capital goods segment, which denotes investment in industry, rose by 41.9 percent in March. It had slid by 4 percent in February and 9.6 percent in January, after growing by 1.5 percent in December.

Going forward, while the IIP is set to consistently register significantly high growth numbers, the real growth may be much more humble.
"Based on the spikes in the YoY growth of GST e-way bills (+582.5%), non-oil merchandise exports (+200.7%), vehicle registrations (+214.7%), and rail freight (+70.4%), as well as a modest rise in the output of Coal India Limited (+3.7%), we expect the IIP to expand by a transient but relatively meaningless ~150% in April 2021 on the low base of the nationwide lockdown that was in effect in April 2020," Nayar added.
Subhayan Chakraborty
first published: May 12, 2021 05:47 pm

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