Mild recovery: IIP drops 10.4% in July; bumpy road ahead

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September 12, 2020 6:15 AM

Manufacturing contracted 11.1% in July, against a 19.6% fall in the previous month, while mining dropped by 13%, against a 16% decline in the previous month.

However, while the contraction in output narrowed from a record 57.3% in April, the relative recovery since June was milder than expected and pointed to a bumpy road to a sustained and strong recovery.However, while the contraction in output narrowed from a record 57.3% in April, the relative recovery since June was milder than expected and pointed to a bumpy road to a sustained and strong recovery.

The index of industrial production (IIP) dropped 10.4% in July, against a 15.8% (revised) contraction in the previous month, reflecting the impact of an easing of lockdown curbs since June. However, while the contraction in output narrowed from a record 57.3% in April, the relative recovery since June was milder than expected and pointed to a bumpy road to a sustained and strong recovery.

Nevertheless, given the exceptional circumstances, the government earlier highlighted that any comparison with the (year-on-year) growth rates for earlier months would be inappropriate at this juncture. Some lockdown-related curbs at the local levels are still intact, which have weighed on manufacturing.

Not surprisingly, capital goods output shrank for 19 months in a row, while consumer durables saw a 14th straight month of fall in July. Of course, the level of contraction narrowed from the previous month. While consumer durables dropped by 23.6% in July, capital goods saw a 22.8% decline. Although, consumer non-durables rose (6.7%) for a second straight month in July, the recovery almost halved, suggesting a loss of momentum in corporate re-stocking.

Manufacturing contracted 11.1% in July, against a 19.6% fall in the previous month, while mining dropped by 13%, against a 16% decline in the previous month. Electricity contracted by 2.5% in July, compared with a 10% fall in June.

Aditi Nayar, principal economist at Icra, said: “Over the next three months, while the base effect is favourable given the contraction in industrial output from August-October 2019, the impact of waning pent-up demand, as well as restocking ahead of the festive season remains to be seen. Moreover, a late withdrawal of monsoon rains could impact the mining and electricity generation activities in September-October 2020.”

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