Macroscope – Indian Industrial Production (IIP) – February 2021

Introduction to Index of Industrial Production (IIP)

IIP, as an index, tracks and reflects changes in the volume of production in key Indian industries.
Different industries are attributed distinct weights and the resultant index is accepted to be indicative of the economy’s industrial health.

Key sectors covered by the index include manufacturing, mining, electricity, primary goods, intermediate goods, consumer durables & non-durables, infrastructure and capital goods.

The index is considered important as an economic indicator helping capital market and economic participants in decision making.

Update: IIP Reading – Feb 2021

IIP contracted for 2nd time in a row by 3.6% in Feb’21, after welcoming 2021 with 1.6% decline previous month.
FY21 year-to-date data shows contraction in industrial sector of 11.3%, vs 1.0% growth in the corresponding period a year ago.

Analyst Commentary

India’s road to economic recovery is laden with more bumps than previously expected as it consolidates with diverse undercurrents across different segments. The swift recovery up to October of last year now lulls with doubt as Asia’s third largest economy faces uncertainty amidst a second wave of coronavirus. Vaccination diplomacy can be viewed as the problem and solution to India Inc’s health & wealth. Here is an element-wise breakup of key factors devising the IIP
index:

The contraction in IIP during February was primarily on account of the manufacturing and mining sectors. The fall in the manufacturing sector was broad-based, with 17 of the 23 sub-groups reporting contraction in production. Remaining six sub-groups reported a rise in production. The fall in IIP follows sharpest contraction (4.6%) seen in eight infrastructure sectors over the last six months, reversing two months of positive growth.

Positives are seen in pick-up in consumer goods reflecting demand revival amidst new lockdown fears. The growth in capital goods production is a direct result of India’s efforts to revive economy via infra-oriented policies and packages. However, this may be short-lived if corona count continues to grow.

IIP numbers highlight the nascent and fragile stage of recovery that the Indian economy was in. We continue to keep an eye on efficient implementation of public policies which can be expected to bolster the economy at large. Resurgence of health risks in fragmented pockets of the nation, disrupted supply-side economics and overtly cautious retail consumption continue to be prominent risks to India’s full-blown economic recovery.

Click Here to read MoSPI’s original press release on ‘Quick estimates of index of industrial production and use-based index for the month of February, 2021’