A faltering recovery - Flailing factory output trends suggest

Contact Counsellor

Last Updated14/02/2022

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.

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.

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 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.