Festive season brings cheers to industry

by Manasi Swamy

The index of industrial production (IIP) rose by 0.2 per cent in September 2020 compared to its year-ago level. This was the first month since the lockdown when the index reported a year-on-year growth. The rate of growth was pale and the index also benefitted from its low base of September 2019, when it had contracted by 4.6 per cent. Nonetheless, the performance was healthy as September 2020 was the best month in terms of industrial production since the lockdown. Release of pent-up demand along with fresh festive spending aided the improvement.

The manufacturing index nearly touched its year-ago level in September 2020. At a growth of 0.6 per cent, it alleviated its rate of y-o-y contraction substantially from 7.9 per cent in August 2020. Among 23 manufacturing sub-groups, 10 reported a y-o-y growth in production in September. This proportion was quite thin during June-August 2020 with only 2 out of 23 sub-groups reporting a y-o-y growth. In May 2020, only one sub-group had reported a growth and in March-April 2020 none had managed to report a growth.

The products that grew were mainly consumer goods. Consumer goods production index grew y-o-y by 3.6 per cent in September 2020. Production of non-durable consumer goods grew by 4.1 per cent and durable consumer goods grew by three per cent. This near three per cent growth in consumer non-durables output is a positive sign for the economy as demand for durables and consequently their production was contracting since May 2019. The lockdown made the situation worse by aggravating the rate of fall from 7.8 per cent during June 2019-February 2020 to 45.5 per cent during March-August 2020. The growth in production of consumer durables in September 2020 was driven by high-end discretionary items such as automobiles, washing machines, electrical home appliances, computers & peripherals and wooden furniture.

Data released by the Society of Indian Automobile Manufacturers (SIAM) shows that passenger cars and two-wheeler production were higher by 8.3 per cent and 14.8 per cent, respectively, in September 2020, compared y-o-y. Moreover, two-wheeler production touched its 15-month high of 2.2 million units in September 2020. Passenger cars production increased further by 31.1 per cent y-o-y and two-wheelers production by 40.1 per cent in October 2020 in anticipation of robust Diwali demand. Preference of households for personal mobility over public transport on the backdrop of the pandemic also aided demand for automobiles.

Consumer non-durables grew by 4.1 per cent in September 2020. A bulk of these include food, pharmaceuticals and chemicals. These reported a y-o-y growth of 0.5 per cent, 7 per cent and 5.1 per cent, respectively, after contracting y-o-y in August 2020.

The index of infrastructure & construction also grew by 0.7 per cent in September 2020 over its year-ago level. Steel, which comprises of a major part of the index and is heavily used in the manufacture of automobiles, consumer electronics and white goods, reported a 0.9 per cent growth in September 2020. Cement production contracted by 3.5 per cent.

The indices of capital goods and intermediate goods declined y-o-y by 3.3 per cent and 1.4 per cent, respectively, in September 2020.

Among primary goods, output of mined products grew y-o-y by 1.4 per cent and electricity generation increased by 4.9 per cent in September 2020. These partially benefitted from a low base of last year. A heavy downpour in September last year had affected the mining activity. Consequently, supplies of coal to thermal power plants were impacted severely.

In September 2020, the mining & quarrying index gained from an increase in coal output which forms around 28.9 per cent of the index. During the month, Coal India and SCCL together recorded a robust 25.2 per cent growth in coal production over the rain-hit weak production a year-ago. This, coupled with a smart increase in iron ore mining to meet the rising demand from domestic steel manufacturers and export demand from China, helped the mining sector post a y-o-y growth in September 2020 despite weak performance of crude oil and natural gas. The trend continued it October 2020, with coal output by the two leading miners growing by 14.1 per cent y-o-y. Iron ore transportation via Indian Railways also remained 14.2 per cent higher than its year-ago level in October 2020, hinting at a healthy growth in its output during the month.

Electricity generation extended its gains further in October 2020 and November 2020, according to the data released by the Central Electricity Authority (CEA). Generation grew by 10.5 per cent over the year-ago level in October 2020 and by 9.6 per cent in the first week of November 2020, responding to the surge in demand after opening up of restaurants, malls, other commercial spaces and recreational places. The festive demand was the icing on the cake.

The recovery evident in the September IIP data is likely to continue into October. This is inferred from the continued buoyancy seen in production of automobile, coal, steel and electricity generation. It is also seen in the 10.3 per cent y-o-y growth in goods and services tax (GST) collection, a 21.4 per cent increase in e-way bills generation, 15.4 per cent growth in railway freight traffic and 2.5 per cent growth in consumption of petroleum products in October 2020. Collectively, these suggest that many other industries may have also recovered from the fall of the previous months.

1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001091002005000000&repnum=111831&frequency=M&colno=1