A faltering recovery - Flailing factory output trends suggest
- Production levels in India’s industries appear to be hitting a roadblock amid what the Government's Union budget describing.
- Flailing factory output trends suggest the rebound in the economy is slow.
- Factory output as measured by the IIP fell for the fourth straight month in December 2021 to a 10-month low of 0.4%, compared to the same month in 2020.
- This is opposite of what is described in the Union Budget as an ""overall sharp rebound and recovery of the economy"" reecting the country’s strong resilience.
Recent trend and statistics
- Omicron variant's impact was limited to contact intensive services sectors.
- From a nearly 13% year-on-year growth in August 2021, the IIP growth has tapered off every passing month.
- By September 2020, most of the lockdown restrictions had been eased, so only some labour force gaps and the shock to condence and demand were the only hiccups for production managers.
- Industrial output should have a sharper pick-up in the last four months of 2021 than the mere 2.5% monthly average, particularly with festive season demand.
- January’s GST collections hit a fresh record may suggest all is well, but tax revenues also get bumped up by inflation.
- GST revenues from imports of goods have been persistently rising faster than revenues from domestic transactions that include services imports.
- The volatility in month-on-month IIP numbers is harder to decipher.
Cause of Concern
- Economists believe IIP prints suggest that the Budget’s bet on a consumption and investment led recovery, is on a weak footing.
- Manufacturing actually shrank in December with capital goods contracting by a sharp 4.6% from 2020 levels.
- Consumer durables saw a fourth consecutive month of contraction while even non-durables tanked after a few months of insipid growth.
- With high commodity costs cramping producers, consumers still in cautious mode and the threat of a steep fuel price hike looming after March election results, this is not likely to get smoother any time soon.
The positive sign
- The Economic Survey for 2021-22 stated that a nascent private investment recovery is expected to accelerate as private consumption will increase and raise capacity utilisation levels.
- The RBI pegged capacity utilisation in the second quarter of 2021-22 at 68%.
- The RBI remains in growth accommodative mode while the world is changing gears to tackle inflation, indicates its concern about the durability and quality of India’s recovery.