Limited Period Offer:Be a PRO for 1 month @Rs49/-Multiple payment options available. Know More

Industrial production returns to contraction in January, retail inflation at 3-month high in February

The dual economic challenge continues in 2021 as a fragile manufacturing sector drags down industrial production in January while the ripple effect of higher fuel prices continues to raise inflation in February.

March 13, 2021 / 07:39 AM IST

Official macroeconomic data continues to show that the economy is off to a tough start in 2021. Released by the Centre on March 12, key statistics show that after rising 1.5 percent in December, industrial production again contracted by 1.6 percent in January. Meanwhile, retail inflation rose to a 3-month high of 5.03 percent in February.

The latest fall in the Index of Industrial Production (IIP) is attributed to a 2 percent fall in manufacturing output, reversing the gains from December when manufacturing had expanded by a similar margin. Experts have continued to predict strong growth coming back to the manufacturing sector after the unprecedented fall in 2020 as a result of the pandemic-induced national and regional lockdowns.

Manufacturing saw an output fall of 11 percent in July, less than June's 15.9 percent contraction. Inherent stress in the sector had become visible in March, but reached a peak during April when output fell by a massive 67.1 percent. Of the 23 sub-sectors within manufacturing, 18 posted a year-on-year contraction, up from 14 in the previous month. The apparel, furniture, pharmaceutical and paper sectors saw the biggest decline. The crucial capital goods segment, which denotes investment in industry, contracted 9.6 percent in January, after growing by 1.5 percent in December.

Consumer demand struggles

Consumer durables remained a major casualty among user-based industries, falling 0.2 percent in the latest month after a rare 5.7 percent rise in the previous month. Consumer non-durables segement, which includes many essential items, also lost its initial growth spurt after the pandemic, falling by 6.8 percent after registering a marginal 0.5 percent rise. Infrastructure goods rose by 0.3 percent, after a 2.7 per jump in the previous month.

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

"The data trend of past few months therefore reinforces the view that the uptick witnessed in the month of September and October was more due to a combination of festive and pent-up demand and we are still far from witnessing a sustained recovery. This also means the government and the RBI will have to continue to support the ongoing recovery," said Sunil Kumar Sinha, Principal Economist at India Ratings.

Inflation keeps climbing

Retail inflation jumped to a three-month high in February. The Consumer Price Index (CPI)-based inflation for February came in at 5.03 percent, up from January's 4 percent. As the increasing price of oil continued to have a ripple effect across sectors, the crucial food inflation rose to 3.87 percent in February, up from January's 2 percent. Overall, the last time inflation was below the Reserve Bank of India's Monetary Policy Committee target range of 4 percent (+/-2 percent) was in March 2020. Since then, it has gone as high as 7.61 percent in October.

Household goods and services, health, and recreation and amusement are other commodities that witnessed higher inflation in February 2021. Health inflation in February was at 6.3 percent, a 17-month high. According to India Ratings, inflation will remain sticky and it not likely to come lower than 4 percent before the third quarter of FY22. In view of the growth inflation dynamics and the guidance given by the RBI,  the central bank is likely to continue with its accommodative policy and keep the policy rates in a pause mode over the next 6-9 months.
Subhayan Chakraborty
first published: Mar 12, 2021 08:16 pm

stay updated

Get Daily News on your Browser
Sections