Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, comments on the July'21 IIP output
India's Industrial Production (IIP) expanded by 11.5% YoY in Jul-21 as unlock measures lead to further normalization, thereby helping industrial output to recoup its lost momentum. Sequentially, the IIP print grew for the second consecutive month by 7.2% in Jul-21 from 5.7% in Jun-21. The improvement is in conjunction with a pick-up seen in high frequency indicators such as exports, E-way bills, PMI manufacturing and auto production for the month of July.
On the sectoral side, the uptick was led by Manufacturing and Electricity posting a solid sequential growth of 8.2% and 9.2% respectively. Within manufacturing, 20 of 23 sub-industries posted a positive annualized growth with industries such as Electrical Equipment, Machinery Equipment along with Motor vehicles & trailers leading the pack. On the other hand, mining activity contracted marginally by 0.8% MoM in Jul-21 led by seasonal monsoon disruption although it grew 19.5%YoY. On the user-based side, broad-based expansion was recorded with capital goods followed by consumer durables registering a double digit growth. However, consumer non-durables saw a slight contraction of 1.8% YoY (3.8%QoQ) possibly due to inventory overhang and a continuing weakness in rural demand.
While the IIP nos look much stronger, it can be noted that the overall index is still 0.3% lower than the pre-pandemic levels in Jul-19. But given the overall growth momentum in Aug-Sep that is reflected in the high frequency indicators, economic activity has almost reverted to pre-second Covid wave peak. With continuing recovery and healthy outlook for exports in Q2 FY22, we expect sequential growth to continue although to a lower extent as the positive base wanes out completely and the index to move up well over the pre-pandemic levels in the next few months.