Feb factory output shrinks 3.6% in sharpest contraction in six months

The cumulative decline during April-February (2020-21) was 11.3%, compared to a growth of 1% during the same period a year ago


Industrial production | Index of Industrial Production | February IIP

Shreya Nandi  | 
New Delhi 

Industrial production declined for the second month in a row in February at a faster rate of 3.6 per cent than 0.9 per cent in the previous month, which could have dampening impact on overall economic growth in the fourth quarter of 2020-21.

This is the sharpest contraction the factory output has seen in six months.

Factory output, as measured by the Index of Industrial Production (IIP), had grown by a 16-month high of 5.2 per cent a year ago, which was the month before lockdown was imposed towards the last week of March, 2020. That way the high base effect may also have accentuated IIP de-growth.

The cumulative decline during April-February (2020-21) was 11.3 per cent, compared to a growth of one per cent during the same period a year ago.

The November and January numbers saw a slight upward revision to (-) 1.6 per cent and (-) 0.9 per cent from (-) 2.1 per cent and 1.6 per cent, respectively, according to data released by the ministry of statistics and programme implementation.

“The data trend of past few months therefore reinforces the view that the uptick witnessed in the month of September-2020 and October-2020 was more due to a combination of festive and pent demand and we are still far from witnessing a sustained recovery,” Devendra Kumar Pant, chief economist at India Ratings said.

Manufacturing sector output, which accounts for more than three-fourths of the entire index, saw de-growth of 3.7 per cent in February from 3.8 per cent growth a year ago. Similarly, mining activity, which accounts for over 14 percent of the entire index contracted 5.5 per cent as compared to a 9.6 per cent growth last year.

Electricity generation growth stood at 0.1 per cent in February, plummeting from 11.5 per cent growth in the same month last year.

Madan Sabnavis, chief economist at Care Ratings said that the major mover of the index was consumer durables, especially auto and electronic items such as mobiles, computers.

Consumer durables output grew to 6.3 per cent in February, from decline of 6.2 per cent a year ago. “A negative base effect has helped push up growth this month,” Sabnavis said.

However, capital goods output, which is reflective of the investment scenario, contracted 4.2 per cent in comparison with 9.6 per cent fall a year ago.

Intermediate goods contracted 5.6 per cent in February from 23 per cent percent a year ago, while consumer non-durables came in at (-) 3.8 per cent in February as compared to a degrowth of 0.3 per cent a year ago.

Infrastructure/construction goods contracted by 4.7 per cent from a growth of 2.8 per cent in February last year.

Pant said production level of primary, intermediate and infrastructure goods, which had breached pre-COVID-19 level in January 2021 has again slumped below it in February 2021.

“Growth pattern of primary and intermediate goods, two leading indicators of industrial production are pointing towards a lacklustre industrial performance in short- to medium-run. This also means the government and RBI will have to continue to support the demand,” Pant said.

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