A faltering recovery - Flailing factory output trends suggest

Contact Counsellor

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.