Wednesday, 09 Oct, 2024
By: Anshul Vipat
According to the Index of Industrial Production (IIP) data released by the National Statistical Office (NSO), industrial growth slowed down from 2.2 percent in July to -0.8 percent in August 2022. Image Source: IANS
According to use-based classification, contraction in IIP was led by both consumer durables (2.5 percent) and consumer non-durables (9.9 percent), signalling that inflation may be eating into consumer demand.
India's Industrial output slipped to an 18-month low contracting by 0.8 percent in August, mainly due to a decline in output of the manufacturing and mining sectors. The last time India's industrial production had contracted was in February 2021. The first contraction in industrial production in one-and-a-half years and a further rise in inflation to a five-month peak in September points towards an economic slowdown.
According to the Index of Industrial Production (IIP) data released by the National Statistical Office (NSO), industrial growth slowed down from 2.2 percent in July to -0.8 percent in August 2022. The industrial output so far in the fiscal year 2022-23 (April-August) has risen 7.7 per cent, compared to a spike of 29.0 per cent in the corresponding period a year ago, the data showed.
Electricity sector is the only saviour
In August, the electricity sector was the only one of the three to register an increase in output, with production of mining and manufacturing goods falling by 3.9 percent and 0.7 percent, respectively, on a year-on-year basis. The index of all the three sectors stood at 191, 99 and 131 respectively.
Nine of the 23 sectors including tobacco products, textiles, apparel, leather, furniture. pharmaceuticals, rubber and plastics, fabricated metal products, and electrical equipment saw contraction in output. According to use-based classification, contraction in IIP was led by both consumer durables (2.5 percent) and consumer non-durables (9.9 percent), signalling that inflation may be eating into consumer demand.
In August last year, the manufacturing sector had witnessed a rise of 11.1 per cent. During the same month, the mining sector had surged 23.3 per cent, while the electricity sector had witnessed a growth of 16.0 per cent, the data showed.
What is IIP?
Index of Industrial Production (IIP) maps the change in the volume of production in Indian industries usually of a month, as against the reference period. It is a composite indicator of the general level of industrial activity in the economy. The sub-components of the index is considered more important. For example, a growth in consumer driven industries signifies increase in demand for consumer goods and denotes higher purchasing power of people. Similarly, a recovery in capital goods sectors shows industrial growth.
Industrial production was hit hard during the pandemic period. It had shrank 57.3 percent in April 2020 due to a decline in economic activities. Thereafter, it remained below 4.4% throughout the year and touched the lowest level of 1 percent in November as well as December 2021.
Tough times ahead
The dip in IIP index echoes the current economic situation of the country. Apart from IIP several other economic indicators have shown a slump in the economy. Country’s inflation rate which had dipped to less than 7 percent for the first time in 2022 notched up to 7.41 percent in September, while Consumer Food Price Index (CFPI) jumped from 7.65 percent in July to 8.38 percent in September, the highest mark in last 22 months. This has forced the RBI to increase repo rate for the fourth straight time. RBI has admitted that retail inflation remains uncomfortably high and has feared that inflation is expected to remain above 6 percent in the next quarter as well. The only postive economic parameter was an increase in consumer sentiments. Will it have any impact on the economic indicators is yet to be seen.
