Industrial growth, based in Index of Industrial Production (IIP), slipped to 0.4 per cent in December as against 1.3 per cent in November, and 2.2 per cent in December 2020. Along with unfavourable base effect, contraction in manufacturing, capital goods, consumer durables and consumer non-durables were the reason for the slump.
However, experts expect growth up to 2 per cent in January.
Data released by National Statistical Office (NSO) on Friday showed manufacturing contracted to 0.1 per cent in December. Contraction in capital goods, consumer durables, and consumer non-durables, along with a feeble growth in the remaining categories ranging from 0.3-2.8 per cent prove that decision taken by Monetary Policy Committee (MPC) on Thursday about not raising the policy rate was correct.
In December 2021, the mining output climbed 2.6 per cent, and power generation increased by 2.8 per cent. During April-December this fiscal, the IIP grew 15.2 per cent against a 13.3 per cent contraction in the same period last year.
Industrial production has been hit due to the coronavirus pandemic since March 2020, when it had contracted 18.7 per cent. It shrank 57.3 per cent in April 2020 due to a decline in economic activities in the wake of lockdown imposed to curb the spread of coronavirus infections.
Aditi Nayar, Chief Economist with ICRA said that capital goods contracted in Year-on-Year terms, as well as relative to the pre-Covid level, highlighting the tentativeness in the investment cycle. In line with our expectation, the recent RBI release indicates a capacity utilisation of 68 per cent in July-September quarter of FY22, “which we expect will improve to 71-72 per cent in the ongoing quarter despite the third wave, but not be enough to trigger a pickup in the private capex cycle.”
She said that unlike the adverse impact on contact-intensive services and mobility, the third wave has not been hugely disruptive for the industrial sector in January 2022, as evidenced by the mild sequential decline in the monthly average generation of GST e-way bills, and rise in electricity and Coal India’s output. “We expect the IIP to grow by 1-2% in YoY terms in January 2022, as the base effect eases,” she said.
Rajani Sinha, Chief Economist with Knight Frank India said that IIP has continued to decelerate in December, in response to Omicron-related disruptions. This is broadly is in line with the slowdown that we have seen in some other high-frequency economic indicators for the last few months. It is specifically concerning that consumer goods, both durables and non-durables, have recorded a YoY fall in December. This further highlights the need for a consumption boost in the economy. However, “it is to be noted that on a sequential basis (month on month) there has been a growth of 7.5 per cent in the IIP. Going forward, the IIP numbers are likely to improve as Omicron related concerns abate,” she said.