By Dominick Rodrigues
Mumbai: With the rebound on relaxation of lockdown restrictions, the Indian industry is faltering like most other peers with possible impact on financial markets in the near term. However, with continued supportive policies and a low base, the Industry expects a marked recovery in FY22, according to a recent Industrial Production Monthly report by Anand Rathi Research.
Industry was in the contraction zone again where, at -3.6% in Feb ’21, industrial growth was the worst since the rebound from the lockdown-led contraction during Mar-Aug’20. With this, IIP remained in the contraction mode for the second successive month and the third time in the last four months.
Industrial performance in Feb’21 was worse than expected and broad-based. With the exception of electricity generation among the main categories and durables in the use-based classification, all others were in the contraction mode. While pent-up demand and lifestyle changes seem to be positively impacting durables, low income growth and subdued business and consumer sentiment are exerting negative influences overall.
The subdued base — coupled with strong pro-investment measures initiated in the Union budget for FY22 — are likely to revive industrial growth from next month.
Higher-than-expected retail inflation and worse-than-expected industrial growth are disappointing and likely to negatively impact financial markets in the near term. Yet, reversal is expected of these trends from next month. Along with the accommodative fiscal policy, monetary and liquidity measures are likely to remain accommodative in FY22.
Disappointment in industrial production performance during Feb’21 was broad-based with all categories – except for durables — recording contractions. Industrial activities across the world seem to be losing momentum after the initial recovery post the phased removal of lockdown restrictions. Despite this, capacity utilisation in India remains relatively high.
Among the major manufacturing categories, with the exception of electricity, others recorded contraction during Feb’21. Among use-based categories, only durables recorded growth. Of the 23 categories of manufacturing, six recorded growth during Feb’21. The corresponding number in the previous month was five.
Hardware, auto, railways and related transport equipment recorded the best growth performance during Feb’21. In contrast, media, furniture and apparel registered the sharpest contraction during the month. In terms of capacity utilisation (data available up to Jan’21), at over 80%, cement, metals, coke, leather and textiles recorded the highest capacity utilisation levels. Printing, computers and wood recorded the lowest capacity utilisation levels.
Most members of G-20 are recording contractions in industrial growth. Except for South Korea, members that are recording growth are countries which were earlier in a prolonged industrial slowdown.
