The index of industrial production (IIP) contracted by 16.6 per cent in June compared to 33.8 per cent in May and a record 57.6 per cent slide in April. This is likely to pull down first-quarter gross domestic product of 2020-21, the data for which would be released this month-end.
The conditional relaxation in industrial activity leading to a graded pick-up was evident from the numbers. Contraction in industrial production slowed further in June, with industrial production growing 23.9 per cent compared to May, seasonally adjusted.
Goldman Sachs said the sequential pick-up was supported by all sub-indices. The slowing of contraction was also in line with core sector output which also showed signs of recovering as its contraction slowed too in June. The eight core sector industries together form 40 per cent of the IIP. Manufacturing activity improved the sharpest in June with contraction in output coming down to 17.1 per cent from 38.4 per cent in May while contraction in mining and electricity recovered only marginally.
However, other experts cautioned against celebrating just yet. “The pace of contraction of various lead indicators, such as the output of Coal India, electricity consumption, and GST e-way bills narrowed to single digits in July 2020, which suggests that de-growth in the IIP would also shrink in that month.
Nevertheless, we continue to caution that pent-up demand contributed to the improved performance of certain categories of manufacturing in June-July 2020, which may not sustain in August 2020 due to the extension of localised lockdowns in various states,” said Aditi Nayar, principal economist, ICRA.
Devendra Pant, chief economist at India Ratings, said sequential improvement in June was on expected lines. “However, the economic activities have not improved much in July and August and does not give confidence for quick recovery,” he said. Ind-Ra expected all the four quarters of 2020-21 to record contraction in GDP.
“We continue to expect the economy to experience a sharp contraction during April-June quarter, as economic recovery fails to gain speed due to local lockdowns imposed by various states through July,” said Rahul Bajoria at Barclays.
After releasing only the index numbers for the IIP for the previous two months, the government on Tuesday announced the total data for June but cautioned that comparing the IIP in the pandemic months with those preceding Covid-19 would not be appropriate.
On traditional year-on-year, all the components of the IIP — mining, manufacturing, and electricity — saw contraction, albeit by a smaller magnitude, than in the previous month. Manufacturing, which accounts for 78 per cent of the IIP, saw output fall by 17.1 per cent in June, less than half of the 38.4 per cent contraction in May. Inherent stress in the sector had become visible since March, but came out at full blast in April, when output had fallen by 67.1 per cent.
All but two of the 23 sub-sectors within manufacturing posted a year-on-year contraction. Buoyed by drug exports and orders for sanitizers and protective gear, pharmaceutical production rang up a 34 per cent rise, hugely bettering its 2.45 per cent growth in the previous month.
Tobacco production, the other sub-sector in the positive zone, rose by 4.5 per cent.
The capital goods segment, which denotes investment in industry, contracted by 36.9 per cent in June. It had been hit hard with declines of 64.3 per cent and over 90 per cent, respectively, in the previous months. With this, production in the category saw its 17th consecutive monthly decline.
Policymakers fear that as the government has exhausted its options of opening up even more sectors by easing foreign direct investment flows, capital goods production might take time to recover.
Consumer durables remained a drag among user-based industries, recording a 35.5 per cent fall, though recovering from May’s 68.5 per contraction. The data from the beginning of the year showed that the production of consumer durables was falling even before the Covid-19 crisis, with June being the 11th month of contraction.
Consumer non-durables, which include many essential items, again entered the growth charts in June, rising 14 per cent. It had seen the narrowest contraction of 11.7 per cent in May.