NEW DELHI: India’s industrial production contracted at a slower pace of 16.6% in June on the back of a modest recovery in manufacturing while it shrank 36% for the quarter that ended last month from a year ago, pointing to a deep cut in gross domestic product (GDP) for the three-month period.
June was the fourth successive month of contraction. Factory output declined 57.6% in April and 33.9% in May, months during which a lockdown was in place to curb the spread of Covid-19.
Manufacturing, mining and electricity contracted 17.1%, 19.8% and 10%, respectively, in June from a year ago, according to index of industrial production (IIP) data released on Tuesday. Sequentially, IIP was up 20.4% in June.
India’s nationwide lockdown began March 25 and was eased in stages starting May, leading to a revival in some business activities. However, disease outbreaks forced states to impose localised shutdowns in July, disrupting the re-opening. The consumer non-durables sector bounced back with 14% growth in June from 11.1% contraction in the month before, but all the other sub-sectors of IIP were deep in the red.
The GDP figure for the first quarter will be released on August 31.
"We project the YoY degrowth in GDP at constant prices at around 25% for that quarter, with some support from the agricultural sector and government spending that were relatively insulated during the lockdown," said ICRA principal economist Aditi Nayar.
Madan Sabnavis, chief economist at CARE Ratings, expects first-quarter GDP to shrink 20% as the strong decline in IIP will "weigh heavily" on it. The government downplayed the extent of contraction. “It may not be appropriate to compare IIP in post-pandemic months with IIP for months preceding the Covid-19 pandemic,” the National Statistical Office said in a release.
The capital goods sector, an indicator of investment activity, saw the steepest fall of 36.9%, followed closely by consumer durables, down 35.5%. Barring tobacco products and pharmaceuticals, the other 21 manufacturing subsectors reported a contraction in June.
“While it has been negative in the three months, there has been improvement in May over April and improvement in June over May,” said Sabnavis. However, ICRA’s Nayar said the pent-up demand that contributed to improved performance of certain categories of manufacturing in June and July may not be sustained in August, given the extension of localised lockdowns in various states. Inventory build-up after depletion in the two months of lockdown may have also contributed to the recovery in June, she added.
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