The worry for India’s business cosmos is not only the subdued level of factory output but also the rising inflation rate.
The eight-month high IIP is mostly driven by the improvement in the manufacturing and electricity sectors.
India’s factory output barely grew in the month of September while China’s IIP recorded a nine-month high level of 6.9 per cent in the month. China maintained the same level of industrial output in the month of October as well and this was also exactly the pre-Covid level in the month of December 2020 for China’s IIP. The disparity in the industrial growth of both nations is when India is trying to catch the bus of investors and manufacturers willing to move the base out of China. India’s industrial growth took a strong blow from the coronavirus pandemic and kept contracting for six months consecutively till August 2020. The contraction was as deep as 57.3 per cent in April 2020.
However, the worry for India’s business cosmos is not only the subdued level of factory output but also the rising inflation rate. The retail inflation rose to 7.61 per cent in October, which is the highest rate since May 2014. “The IIP is almost flat at 0.2 per cent while the price level too is rising. To sustain the early gains in recovery control of the price level is critical,” said Joseph Thomas, Head of Research – Emkay Wealth Management.
It is also to be noted that while China just had a single pain of recovering from the disruptions caused by the coronavirus pandemic, India was hit by the double-edged sword of the pandemic and the prolonged slowdown. The weak fundamentals of India’s manufacturing landscape presented comparatively a larger amount of vulnerability. For the seven months till September 2020, India’s manufacturing production growth kept on shrinking. Even as the IIP grew 0.2 per cent, the manufacturing production further slid by 0.6 per cent.
Meanwhile, China’s retail trade rose by 4.3 percent on-year in October 2020, which was the biggest increase since December last year. The consumption also continued to recover from the Covid-19 shock, with sales rising for almost all categories.