Official macroeconomic data continues to show that the economy is off to a tough start in 2021. Released by the Centre on April 12, the Index of Industrial Production (IIP) showed industrial output in India once again shrank in February, going down by 3.6 percent.

IIP had contracted by an updated 0.9 percent in January after rising by 1.6 percent in December. It has shrunk 8 out of the first-11 months of the 2020-21 financial year.

Post the release of the latest figures, India's industrial output has now shrunk 11.3 percent in the April-February period of FY21, as compared to the same period of the previous year.

Rust in manufacturing 

The latest fall in IIP is mainly attributed to a 3.7 percent fall in manufacturing output, a larger fall than January's 2 percent contraction. Of the 23 sub-sectors within manufacturing, 17 posted a year-on-year contraction in February, slightly down from 18 in the previous month. The apparel, furniture, electronics, metals and machinery industries, paper and vehicles bore the largest brunt of the latest contraction and saw the biggest declines.

Manufacturing had been in freefall for most of 2020 given the series of total lockdowns implemented at the national and regional levels. But inherent stress in the sector had become visible even before the pandemic hit.

However, the crucial capital goods segment, which denotes investment in industry, contracted by a smaller margin of 4.2 percent in February. It had slid by 9.6 percent in January, after growing by 1.5 percent in December.

Consumer products recover

Other parts of the IIP data were relatively more hopeful. Among user-based industries, consumer durables rose 6.3 percent after falling 0.2 percent in February. The consumer non-durables segment, which includes many essential items, also moderated its losses. It shrank by 3.8 percent, after reducing by 6.8 percent in January. Infrastructure goods however continued to fall, contracting by 4.7 percent after the marginal growth of 0.3 percent in the previous month.

Experts say strong growth would need more time to come back to the manufacturing sector after the unprecedented fall in 2020 as a result of the pandemic-induced national and regional lockdowns.

"The data trend of past few months therefore reinforces the view that the uptick witnessed in the month of September-2020 and October-2020 was more due to a combination of festive and pent demand and we are still far from witnessing a sustained recovery.  Growth pattern of primary and intermediate goods, two leading indicators of industrial production are pointing towards a lacklustre industrial performance in short- to medium-run. This also means government and RBI will have to continue to support the demand," said Devendra Pant, Chief Economist at India Ratings.

Source & Courtesy: moneycontrol.com