India’s industrial production, as measured by the Industrial Production Index (IIP), contracted 10.4% annually in July, according to data released by the ministry of statistics and program implementation. This is the fifth consecutive month of contraction in PII. While the contraction is in line with a Reuters forecast, it is better than the projected figure (11.5%).
On the positive side, the data shows a sequential recovery in industrial activity during the previous months. Experts believe that a sequential recovery will continue in August and September, but that the lack of fiscal stimulus and the dissipation of pent-up demand could generate headwinds in this process.
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Industrial activity in July this year was lower than last year’s levels in all categories. PII is classified into two types of categories. Categories based on economic activity include mining and quarrying, manufacturing, and electricity. Use-based categories include primary goods, intermediate goods, capital goods, infrastructure goods, and consumer goods.
The last category has a sub-classification of durable and non-durable consumer goods. A look at usage-based categories suggests that both consumption and investment, the two crucial engines of growth, continue to present a bleak picture. Although all subsectors continue to show a sequential improvement (this month’s figures are better than those of previous months), the contraction of capital goods and durable consumer goods continues to be above 20% per year.
India’s industrial production suffered a 38% annual contraction in the first quarter (April-June) of the current fiscal year. Global GDP contracted 23.9%.
The government has said that the first quarter performance was due to the exogenous impact of the lockdown and that the economy is in the process of making a V-shaped recovery. A V-shape implies that economic activity will quickly return to normal levels after suffer a heavy fall.
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High-frequency indicators that are available for the post-July period, such as the Purchasing Managers Index (PMI) for August and the Nomura India Trade Resumption Index (NIBRI) through last week, support claims of a recovery. continuous sequential. The manufacturing PMI broke the 50 threshold — a PMI value above 50 means expansion of economic activity — in August for the first time since April. The NIBRI rose to 77.4 in the week ending September 6, the highest level since the lockdown was imposed on March 25. But other indicators, such as the consumption of petroleum products, paint a different picture. According to data published by the Ministry of Petroleum, the consumption of petroleum products in August was the lowest since April. The drop was driven by diesel consumption, suggesting a drop in freight transport.
The IIP figures for July suggest that the ongoing sequential recovery could be losing momentum as the curve deviates from a V-shaped pattern.
Experts attribute this to continued local blockades. “The data also show that the strong recovery recorded in May and June is turning somewhat flat. Part of the reason is local / partial / weekend closure imposed in many parts of the country, often without much anticipation, ”said a note from Sunil Kumar Sinha, India’s senior ratings and research economist. Recovery could be further compromised as the number of cases continues to rise. A Nomura research note warned that the recovery in the resumption of economic activity was being driven by “lockdown fatigue.”
Madan Sabnavis, chief economist at CARE Ratings, expects the rate to improve further in August and close to zero in September. “The critical sectors to be tracked would be the automobile, in particular, in the coming months, which have shown some signs of a turnaround, based on suppressed demand to some extent,” he added.
Passenger car sales improved 14.1% annually in August, according to the Society of Automobile Manufacturers (Siam).
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