India’s industrial output grew by 11.5% in July compared to a 10.5% contraction a year ago, as per quick estimates from the National Statistical Office (NSO) released on Friday.
Output measured by the Index of Industrial Production (IIP) had grown 13.6% in June and 28.6% in May, owing to the base effects of the national lockdown in 2020 that hit most economic activity.
Manufacturing, mining and electricity output recorded double digit growth in July at 10.5%, 19.5% and 11.1%, respectively, as per the IIP. Last July, these sectors had contracted by 11.4%, 12.7% and 2.5%, respectively.
ADVERTISEMENT
The overall IIP in July was still about 0.3% lower than 2019 levels, but the marginal difference suggests the industrial sector may be on the cusp of returning to pre-pandemic levels if the trend sustains in coming months.
Among the use-based components of Industrial output, Consumer non-durables' production shrank by 1.8% in July. Last July, it was the only category to record an uptick, rising 1.8%.
CARE Ratings Chief Economist Madan Sabnavis pointed out that this was the only sector fully operational during last year’s lockdown as well as this year, as these goods were considered to be essential.
ADVERTISEMENT
ICRA Chief Economist Aditi Nayar said the contraction in the category for the second month in a row struck a ‘discordant’ note, even as July’s manufacturing index was nearly as high as the level in October 2020 during last year's festive season. “This offers a glimpse into the strength of the revival after the second wave,” she noted.
All the other use-based components reported a double-digit rebound from 2020 levels - capital goods grew 29.5%, while consumer durables rose 20.2% and intermediate goods' output surged 14.1%.
Base effects aside, reviving demand in the coming months would be critical to sustain growth, particularly for consumer durables, reckoned Mr. Sabnavis.
“We may expect a high IIP growth rate in August too as last year, there was a decline in growth. However, from September, the base effect will get diluted sharply as growth was positive in the next two months,” Mr. Sabnavis said.
“In sequential terms, manufacturing output rose by 8.2% in July 2021, much lower than the corresponding 17% change in the generation of GST e-way bills,” noted Ms. Nayar.
“We believe the latter represents continued inventory clearance as the state-wise restrictions eased. Subsequently, the GST e-way bills have remained flat in August 2021 at the previous month's level, which may be on account of a stabilisation in dispatches rather than a signal that the growth momentum is plateauing,” she explained.
The NSO also revised its industrial production estimates for April 2021 to 133.5% from 134.4% calculated earlier, urging caution in interpreting these growth rates ‘considering the unusual circumstances on account of COVID-19 pandemic since March 2020’.