Industrial production grew 1.3% in January from a year before, having recovered from a 10-month low of 0.7% in the previous month, partly aided by a conducive base, showed official data released on Friday. However, it grew only 0.7% from the pre-pandemic (same month in FY20) level, reflecting the impact of the new Covid wave and suggesting that an industrial recovery is yet to take roots.
Nevertheless, some analysts say the industrial sector still remained “relatively unscathed” from the Omicron onslaught, or else it could have slipped into contraction in January.
Coupled with elevated inflation, the sluggish industrial activities will complicate the central bank’s task of curbing underlying price pressure in the economy when global commodity prices are moving up without upsetting growth dynamics.
Some analysts have pencilled in a 25-basis point hike in the benchmark lending rate by the monetary policy committee in June (if not in April), given the external headwinds. Global oil prices remain elevated in the wake of the Russia-Ukraine conflict and the US Federal Reserve may quicken the pace of tapering its asset purchases and raising its interest rates, compounding the risks of capital flights from emerging economies.
Importantly, on a year-on-year basis, capital goods output, a proxy for investment, shrank for a fourth straight month in January. However, at 1.4%, the level of contraction narrowed from the December level of 3.8%. Consumer durables, however, shrank at a faster pace in January than in December, indicating tepid urban consumption. Consumer non-durables output, meanwhile, rose 2.1% in January from -0.1% in the previous month, likely reflecting a nascent recovery in rural demand. Infrastructure goods production scaled a three-month high of 5.4% in January.
While growth in manufacturing inched up to 1.5% in January from 0.2% in the previous month, that of electricity dropped to just 0.9% from 2.8%. Mining rose marginally to 2.8% in January from 2.6% in the previous month.
Icra chief economist Aditi Nayar said high-frequency indicators point to a mixed trend in February despite the easing of Covid curbs. “Manufacturing is unlikely to rise as much as the surge in the daily average GST e-way bill generation in February, especially given the weaker performance of the auto sector,” she said.
Nayar expected the IIP growth to remain sub-2% in February, thanks to a modest uptick in electricity demand growth amid a dip in the year-on-year performance of Coal India.
Economists at India Ratings said the negative growth in consumer durables and capital goods for a fourth consecutive month suggests that “neither consumption demand nor the investment demand is showing any traction”. They said high commodity prices, especially of crude oil, will “further dampen the consumption demand and will also be a risk for the much-awaited revival of the private corporate investment cycle”.