Inflation | March factory output up 22.4% on low base effect
India’s industrial production rose by a sharp 22.4% in March after two months of contraction, helped by the year-earlier low base due to the first Covid wave, data released on Wednesday showed. Economists have warned that the second wave will dent growth expectations. Separately released data showed retail inflation eased to a three-month low in April to 4.29% from 5.52% in March due to softening food prices.
The index of industrial production (IIP) shrank 0.8% in FY20 compared with the contraction of 8.6% in FY21. India imposed a nationwide lockdown toward the end of March last year, which was lifted in phases. Closures have returned due to the second Covid wave.
“IIP at 143.4 in March 2021 is still lower than that in March 2019 when it was 144.1,” said Madan Sabnavis, chief economist,
Impact of Shutdowns
“Therefore, the increase this time is mainly due to the negative base effect. We should be guarded in our interpretation,” he said.
Industrial production had contracted 18.7% in March 2020. This base effect is likely to last until August this year because of negative growth last year. As the second Covid wave of the pandemic has swept through India, states across the country have been imposing shutdowns and curfews over the past few weeks.
“With movement curbs intensifying through April and May, we could see a further softening in incremental industrial activity in Q2 21,” said Barclays India chief economist Rahul Bajoria.
The latest pandemic wave is expected to significantly moderate the sharp rebound in GDP growth that was expected in the first quarter.
“The continuing elevated fresh Covid-19 infections pose substantive risks to the outlook for consumer sentiment and economic activity in several Indian states,” said Aditi Nayar, principal economist,
. “There is a distinct downside bias to our forecast of a 20-25% GDP expansion in Q1 FY2022.”
Most high-speed indicators such as automobile sales, mobility indices and e-way bills have shown a decline in economic activity.
The government could support capacity expansion in the health sector by frontloading its budgetary provisions for capital spending and infrastructure, said EY India chief policy advisor DK Srivastava.
Manufacturing, which has a 77% weight in IIP, grew 25.8% in March compared with a 22.8% contraction in the same month last year. In FY21, manufacturing contracted 9.8% against a 1.4% decline in the previous year. Mining output was up 6.1% in March against a 1.3% decline in the year earlier, while power generation increased by 22.5% versus a contraction of 8.2%. Capital goods, a barometer of investment, grew by 41.9 %, consumer durables by 54.9% and non-durables by 27.5%, as per official data.
Retail inflation, as measured by the Consumer Price Index (CPI), eased to a three-month low in April to 4.29% from 5.52% in March as food inflation softened to 2.02%. That’s on the back of a significant dip in vegetable, sugar and confectionary product inflation.
Urban inflation was at 4.77% while rural inflation was lower at 3.82%.
While the April figure slipped due to the lockdown-induced high base last year, the current localised restrictions appear to have had a limited impact on inflation, experts said.