Base effect drives up IIP growth in April

In fact, the government released only the index readings for April on Friday, without announcing the growth rates, as comparisons with April 2020 data are fraught with risks of erroneous interpretations.

Moreover, the latest index readings for capital goods, consumer durables and infrastructure goods were lower than the April 2019 levels, but those for consumer non-durables, primary goods and intermediate goods remained higher.
Moreover, the latest index readings for capital goods, consumer durables and infrastructure goods were lower than the April 2019 levels, but those for consumer non-durables, primary goods and intermediate goods remained higher.

The index of industrial production (IIP) hit 126.6 in April, marking a 134.4% surge from a year before, driven primarily by a favourable base.

Government officials and analysts cautioned against reading too much into the latest rate of expansion, given that a Covid-induced lockdown in April 2020 had substantially hampered industrial production (IIP had crashed by 57.3%).

In fact, the government released only the index readings for April on Friday, without announcing the growth rates, as comparisons with April 2020 data are fraught with risks of erroneous interpretations.

Nevertheless, at 126.6, the index reading for April is a tad higher than that of 126.5 for April 2019 (before the pandemic). The government also revised up IIP growth to 24.1% for March from 22.4% reported earlier and to -0.6% for January from -0.9%.

Moreover, the latest index readings for capital goods, consumer durables and infrastructure goods were lower than the April 2019 levels, but those for consumer non-durables, primary goods and intermediate goods remained higher.

Sunil Sinha, principal economist at India Ratings, said industrial output in April 2021 was only 94.3% of that in February 2020 (just before the pandemic spread its tentacles) and only marginally higher than the April 2019 level. “Clearly, the path to economic recovery and a meaningful economic growth rate isn’t a FY22 but FY23 story.”

Aditi Nayar, chief economist at Icra, said the latest IIP growth could flatten appreciably to under 20% in May 2021, with “an easing of the favourable base effect and the sequential moderation in volumes related to the second Covid surge and widening state level restrictions”.

“With the fresh cases having moderated substantially and a phased unlocking underway, we expect the sequential momentum to improve over a variety of high frequency indicators in June-July 2021,” Nayar said.

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