Industrial recovery faces headwinds

by Madhumita Gokhale

Industrial activity in India recovered from the shock of the second wave of Covid-19 in August 2021. The recovery progression has been quick and smart in the last three months. In May 2021, the index of industrial production (IIP) was 15 per cent lower than the pre-Covid level of May 2019. The subsequent two months witnessed a sustained improvement, with the IIP reaching its corresponding pre-Covid level in July 2021. Then, in August 2021, the IIP exceeded its pre-Covid level by 3.9 per cent. But, the recovery faces headwinds as early data from September shows signs of stress in the recovery.

The August recovery in industrial activity was broad-based. Output of mining & quarrying as well as of electricity increased for the second consecutive month over their corresponding 2019 levels. Electricity generation shot up by 13.9 per cent in August 2021 as compared to August 2019. In July 2021, the increase had been of 8.3 per cent. Similarly, output of mined products grew by 12.8 per cent in August 2021 compared to its pre-Covid level. It had increased by 4.4 per cent in July 2021.

The manufacturing sector witnessed a comparatively smaller increase in output, of 1.4 per cent compared to August 2019. This was the first month when the manufacturing sector recovered to its pre-Covid level after the second wave. 11 of the 23 sub-groups under the manufacturing sector witnessed an increase as compared to August 2019. These included sub-groups such as food products, textiles, chemicals, pharmaceuticals and metals.

In terms of usage, all components of the IIP observed a sharp improvement in August 2021 as compared to the same month in 2019, with the exception of consumer durables.

Infrastructure/construction goods recorded the highest growth in output in August 2021, of 11.1 per cent over August 2019. These goods mainly include cement, cement clinkers, steel products and other goods used in construction. This was the second consecutive month that saw an increase in their production, indicating a surge in construction activity in spite of the monsoon season.

Capital goods also recorded a higher level of production in July and August 2021 as compared to the same months in 2019. The increase had been marginal in July, of 0.8 per cent. It accelerated to a 2.8 per cent increase in August 2021.

Output of primary and intermediate goods increased by 4.4 per cent and five per cent respectively, in August 2021 as compared to the same month in 2019. Production of both these categories was not as severely affected by the second wave as the other use-based categories of IIP. Primary and intermediate goods had faced a 7 per cent decline in production in May 2021 as compared to the same month in 2019. In June 2021, the decline had reduced to less than five per cent in a similar comparison, followed by a slight increase in July 2021.

Consumer non-durables recorded a two per cent increase in production in August 2021 as compared to the corresponding pre-Covid level. Like primary and intermediate goods, the impact of the second wave was less severe on the production of consumer durables, as this sub-group largely consists of daily use commodities. In May 2021, consumer non-durables’ production was 9.5 per cent lower than in May 2019. In June 2021, it was the only use-based sub-group that observed a higher level of production than in June 2019.

In contrast to the above, consumer durables was the only sub-group that continued to observe a decline in production in August 2021 as compared to its corresponding pre-Covid level. But the extent of its decline has narrowed substantially during the past three months. In May 2021, production of consumer durables had been 46.5 per cent lower than in May 2019. The decline reduced to three per cent in August 2021 in a similar comparison. Passenger cars and two wheelers continued to face a sharp decline in production in August. On the other hand, durables like gold jewellery, TV sets and computers recorded a double-digit increase over the corresponding pre-Covid levels.

The increase in the IIP is however not likely to be sustained in the coming months, in spite of the lifting of restrictions. The increase in electricity generation as compared to its pre-Covid level has slowed down to three per cent in September 2021, as per data by the Central Electricity Authority. There has been a similar slow-down in the growth of crude steel production to 8.8 per cent, as per data by the World Steel Association. Fertiliser sales have been marginally lower than in September 2019, by 0.4 per cent. Production of crude oil has also remained 7.7 per cent lower than in September 2019. Petroleum products’ consumption has been 1.7 per cent below its pre-Covid level in September 2021, although the gap has narrowed down. The current coal shortage is likely to further slow-down growth of electricity generation and overall industrial production in the coming months.

The decline in production of consumer durables is also likely to have continued in September. Production of passenger cars in September 2021 has declined by 43 per cent as compared to September 2019, according to data by the Society of Indian Automobile Manufacturers (SIAM). Two wheeler production has also remained 4.9 per cent lower than in September 2019. Growth in tractor sales in September 2021 has been weak at 14.7 per cent over September 2019, in comparison to the almost 50 per cent growth seen in the previous two months over the pre-Covid levels.

Index of Industrial Production (IIP) in August 2021
  Weight Index numbers % change over August 2019
IIP 100 131.1 3.9
  By economic activity      
    Mining & quarrying 14.37 103.8 12.8
    Manufacturing 77.63 130.2 1.4
    Electricity 7.99 188.7 13.9
  By usage      
    Primary goods 34.05 127.3 4.4
    Capital goods 8.22 91 2.6
    Intermediate goods 17.22 142.7 5.0
    Infrastructure/construction goods 12.34 145.2 11.1
    Consumer goods 28.17 134.1 -0.1
      Durables 12.84 118.3 -3.0
      Non-durables 15.33 147.3 2.0

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.0 +0.7
Consumer Sentiments Index
Base September-December 2015
59.8 -0.3
Consumer Expectations Index
Base September-December 2015
61.8 -0.5
Current Economic Conditions Index
Base September-December 2015
56.6 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Dec 20 Mar 21 Jun 21 Sep 21
New projects 1.50 2.26 2.64 2.09
Completed projects 0.87 1.17 0.72 1.09
Stalled projects 0.30 0.26 0.32 0.03
Revived projects 0.15 0.22 0.12 0.27
Implementation stalled projects 0.20 0.34 0.25 0.22
Updated on: 02 Dec 2021 9:28AM
Quarterly Financials of Listed Companies
(% change) Dec 20 Mar 21 Jun 21 Sep 21
All listed Companies
 Income 1.6 15.1 39.3 27.8
 Expenses 0.1 7.4 38.9 27.2
 Net profit 58.1 333.6 134.9 53.1
 PAT margin (%) 8.4 8.8 9.0 9.7
 Count of Cos. 4,462 4,391 4,479 4,495
Non-financial Companies
 Income 0.2 17.7 56.3 35.8
 Expenses -0.7 10.6 57.4 36.3
 Net profit 51.8 223.2 199.9 59.6
 PAT margin (%) 8.8 9.0 8.5 8.8
 Net fixed assets 2.2 13.9
 Current assets 4.4 17.5
 Current liabilities 0.8 6.8
 Borrowings -4.3 21.5
 Reserves & surplus 11.7 18.8
 Count of Cos. 3,284 3,247 3,299 3,285
Numbers are net of P&E
Updated on: 02 Dec 2021 9:28AM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.3 0.4 -1.3
 Expenses 13.6 0.4 -3.8
 Net profit 15.2 -10.7 50.4
 PAT margin (%) 2.1 2.1 6.5
 Assets 9.8 8.7 11.4
 Net worth 8.5 4.6 13.2
 RONW (%) 3.7 3.5 8.6
 Count of Cos. 32,313 31,235 8,302
Non-financial Companies
 Income 14.0 -1.4 -3.1
 Expenses 14.2 -1.1 -5.2
 Net profit 21.7 -20.8 40.5
 PAT margin (%) 2.9 2.4 6.0
 Net fixed assets 5.7 10.7 2.0
 Net worth 7.9 2.4 11.0
 RONW (%) 6.4 5.0 9.6
 Debt / Equity (times) 1.0 1.1 0.7
 Interest cover (times) 2.3 1.9 3.2
 Net working capital cycle (days) 74 81 78
 Count of Cos. 25,815 24,885 6,091
Numbers are net of P&E
Updated on: 28 Nov 2021 2:41PM