Industrial Production in India expands to 1.7%

Industrial Production in India expands to 1.7%

The Index of Industrial Production (IIP) in India expands to 1.7% in February 2022 on the backdrop of improved output in mining and electric sectors of the country. This is higher than the 1.5% in January and a big improvement over the same period of the previous year. 

The data released late March by the Ministry of Statistics and Programme Implementation shows that the output in eight core sectors has grown with a pace of 5.8% in February as compared to the 4% of previous month. Since these eight core sectors account for around 40.3% of total weight of the IIP, the overall IIP also sees a jump in February. 

The higher figure of growth in IIP is also due to the low base of February 2021 when the industrial output contracted by 3.2%. 

Performing Sectors

Mining Sector

Output from this sector increased to 4.5% in February 2022, which is a substantial increase when compared to 4.4% contraction in the same period of the previous year. 

Electric Sector

The sector rose to 4.5%, compared to only 0.1% in February 2021. 

Infrastructure Sector

Growth is also seen in the infrastructure sector, where index rose to 9.4%, 

Primary goods and intermediate goods sectors where growth has expanded to 4.6% and 4.3% respectively. 

The Motor Vehicle sector also picked up pace in February 2022 as compared to the previous year.

Underperforming Sectors

Although the figures of growth in overall industrial output may look healthy at first glance, the reality is a bit different.

The Manufacturing Sector, one of the most important sectors which makes around three-fourths of the IIP rose merely by 0.8% in February 2022, which is lower than the 1.3% that was registered in January 2021. When compared on the basis of use-based classification, we get a mixed result with half of segments registering growth and half showing downside. 

The slowdown is also seen in the growth of capital goods. In February 2022, the capital goods category posted a growth of 1.1% which is lower than 1.4% of the previous month. This is a major concern since a RBI survey showed that capacity utilization in the manufacturing sector increased to 26 months high at 72.4% in Q4 of 2021. A capacity utilization rate of 75% is considered ideal that must be achieved so that companies can start investing in greater capacities. It becomes a matter of concern when the same is evaluated to the subdued rise in output of capital goods in both January and February.

Contraction is seen in consumer durables and nondurables categories. The output in consumer durable goods contracted by 8.2% in February 2022 compared to 3.6% contraction in January 2022. Similarly, the consumer non-durable goods category saw a contraction of 5.5% compared to 2.1% positive growth in the previous month. 

The data released by the Ministry of Statistics and Programme Implementation also reveals that the overall industrial growth has risen to 12.5% in FY 2021-22, which is a healthy recovery when compared to the contraction of 11.1% in the previous FY.

Besides, despite registering good exports, the industrial activity remains tepid. The key reason behind this is subdued domestic demand, mainly on the consumption front.