In a sure sign that the economy was on a V Curve of growth, industrial production registered a growth for the second straight month, moving to an eight-month high of 3.6 per cent in October on the back of recovery in manufacturing, consumer goods and power sectors.
The manufacturing sector, which has a weightage of 77.6 per cent in the IIP, recorded a growth of 3.5 per cent in October. This rise also reflects in the GST collection that has been on a upward move for the last three months. The manufacturing sector had a contraction of 5.7 per cent, during the same period last year, according to data released by National Statistical Office.
The consumer durables segment, which mainly includes white goods, posted an impressive growth of 17.6 per cent in October whereas it was a contraction of 18.9 per cent in the same period a year ago – thus showing up healthy sales during the festival season of Diwali.
Another sign that manufacturing sector picked up is reflected in the electricity generation sector, which recorded an impressive growth of 11.2 per cent in October while output of mining sector contracted by 1.5 per cent during the same period.
The IIP had contracted by 6.6 per cent in October 2019. The industrial production witnessed a 5.2 per cent growth in February this year. But as the pandemic hit the country, the IIP entered the negative territory in March and remained that way till August as the long lockdown and lack of consumer demand had a telling demand on the production in various sectors. In September 2020, there was a marginal growth of 0.5 per cent.
On March 25, the government had imposed a lockdown to contain the spread of COVID-19 infections and that predictably disrupted economic activities across the country. Exports and Imports also tanked. However, as unlock began with the gradual relaxation of restrictions, there has been relative improvement in the economic activities.
While the IIP growth stood at an eight month-high and displayed its best performance since the pandemic struck, the pace of the improvement in October 2020 was feebler than expected. But experts say that the growth in 2021 will be on a high.
The available indicators including output of coal, electricity, non-oil exports and GST e-way bills have revealed that the pace of growth dipped in November 2020. A combination of an unfavourable base effect, fewer working days related to the shift in the festive calendar as well pent up demand dropping down.
As per the NSO data, output of capital goods which is an indicator of investment, grew 3.3 per cent in October. Compare this to a massive contraction of 22.4 per cent in the year- ago month.
Consumer non-durable goods production grew 7.5 per cent while it was a contraction of 3.3 per cent in the year-ago period. The ‘infrastructure/ construction goods’ segment of the IIP posted a growth of 7.8 per cent in October 2020.
However, the primary goods segment posted contraction of 3.3 per cent during the month under review.
The IIP for the April-October period contracted by 17.5 per cent, as per the data. It had registered a growth of 0.1 per cent during the same period last fiscal.
Manufacturing activities are gradually reaching the pre-COVID-19 level and are now just 2.6 per cent lower than the February 2020 level, a sure sign that pent up demand is now a genie out of the bottle.
Two consecutive months of positive IIP growth is a good sign for the economy but one may have to wait for few more months to believe that economy is firmly on a path of recovery since in the past IIP growth, more than once, has collapsed after couple of months of good growth.
High stimulus, government spending, low rates, and easy liquidity along with positive IIP and GDP growth has ensured a quick recovery post the pandemic-led chaos. The strong recovery is expected to be durable and hopefully, we will see pre-COVID-19 level growth in a few quarters.