Industrial recovery falters
The recovery in industrial production following the second wave of Covid-19 weakened in November 2021. Industrial production began to recover from the shock of the second Covid-19 wave in the September 2021 quarter. This was reflected in the index of industrial production (IIP), which rose above the corresponding pre-Covid level during this period. October 2021 continued to witness rapid improvement. But in November 2021, the index dropped below its corresponding pre-Covid level once again. Early data for December suggests that the recovery is likely to remain interrupted.
October 2021 recorded a surge in industrial production due to the release of pent-up demand during the festive season. India’s IIP in October 2021 grew by four per cent, on a y-o-y basis. This was on top of a healthy 4.5 per cent increase seen in October 2020. But this growth was not sustained in November. Growth in industrial activity decelerated to 1.4 per cent in November 2021. This low growth came on the back of a 1.6 per cent contraction seen in November 2020.
The initial recovery in the September 2021 quarter was broad-based, with all components of the IIP seeing a substantial increase. But the quality of this recovery weakened by November 2021. Capital goods and consumer durables observed a sharp y-o-y contraction in output in November 2021. All other components of the IIP faced a slowdown in growth. Output of essential goods such as consumer non-durables increased only marginally, by less than one per cent y-o-y during October and November 2021.
Output of capital goods fell for the second consecutive month in November 2021. The decline was of the order of 3.7 per cent, and came on the back of a 7.5 per cent contraction seen in November 2020. Consumer durables also faced a steep y-o-y fall in output of 5.6 per cent in November 2021. This was the third consecutive month of a y-o-y fall in output of consumer durables. This indicates weakness in investment demand and discretionary spending.
The slowdown in industrial growth in November 2021 was driven by a sharp deceleration in the manufacturing sector. Output of manufactured products rose only marginally, by 0.9 per cent y-o-y in November 2021. Its growth in September and October 2021 was above three per cent. 11 of the 23 sub-groups under the manufacturing sector reported a y-o-y decline in output in November 2021. These include food products, chemical & chemical products, machinery, motor vehicles and non-metallic mineral products. In comparison to this, only five sub-groups had witnessed decline in production during the initial recovery phase, in the September 2021 quarter.
Growth in mining & quarrying output moderated to five per cent y-o-y in November 2021. This component had witnessed a sharp increase of 11.5 per cent in October 2021. Electricity generation also witnessed a slowdown in growth to 2.1 per cent in November 2021 from 3.1 per cent in October 2021.
The deceleration in industrial activity is likely to continue in December 2021. The Purchasing Managers’ Index (PMI) for manufacturing fell to 55.5 in December 2021. This was 1.6 per cent lower than the corresponding year ago level. Data on aggregate orders received by listed companies show that the value of aggregate new orders for machinery and construction companies, at Rs.420 billion in December 2021, was 54 per cent lower than the year-ago level.
Fast-frequency data from alternate sources available on several industries also point to continued moderation in December 2021. Sales of passenger cars and two wheelers continued to decline y-o-y in December 2021, by 18.2 per cent and 8.3 per cent, respectively. Tractor production similarly fell by 41.8 per cent y-o-y. Production of finished steel and petroleum products’ consumption rose only marginally by 0.4 per cent. Coal production growth also slowed down for the second consecutive month in December 2021, to 2.9 per cent y-o-y from 8.7 per cent in October 2021 and 4.9 per cent in November 2021.
Fertiliser sales and electricity generation were among the only fast-frequency indicators that showed signs of improvement in December 2021. Fertiliser sales rose by 5.3 per cent y-o-y in December 2021, compared to a 3.2 per cent increase registered in the previous month. Conventional electricity generation also grew by 2.5 per cent y-o-y in December 2021, up from 1.8 per cent in November 2021. But it stagnated in the first 22 days of January 2022, remaining at the same level as seen in the corresponding period last year.
Growth in GST e-way bill generation, which is a measure of goods transportation activity, also decelerated slightly in the first four weeks of January 2022. It rose by 9.8 per cent y-o-y during this period, compared to the 11.6 per cent y-o-y increase seen in the first four weeks of December 2021. As per a news report by CNBC TV18, diesel and petrol sales in the first 15 days of January 2022 remained below their corresponding year-ago level by five per cent and 2.8 per cent, respectively. This early data suggests that the moderation in industrial growth is likely to have continued.
| Weight | October 2021 | November 2021 | |||
|---|---|---|---|---|---|
| Index numbers | Y-o-Y % change | Index numbers | Y-o-Y % change | ||
| IIP | 100.0 | 134.8 | 4.0 | 128.5 | 1.4 |
| By economic activity | |||||
| Mining & quarrying | 14.4 | 109.8 | 11.5 | 111.9 | 5.0 |
| Manufacturing | 77.6 | 136.1 | 3.1 | 129.6 | 0.9 |
| Electricity | 8.0 | 167.3 | 3.1 | 147.9 | 2.1 |
| By usage | |||||
| Primary goods | 34.1 | 128.5 | 9.0 | 126.5 | 3.5 |
| Capital goods | 8.2 | 89.9 | -1.5 | 81.2 | -3.7 |
| Intermediate goods | 17.2 | 146.1 | 3.8 | 141.8 | 2.5 |
| Infrastructure/construction goods | 12.3 | 153.6 | 6.6 | 142.5 | 3.8 |
| Consumer goods | 28.2 | 140.4 | -1.1 | 130.4 | -1.7 |
| Durables | 12.8 | 129.0 | -3.6 | 106.7 | -5.6 |
| Non-durables | 15.3 | 150.0 | 0.9 | 150.3 | 0.8 |