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May 2022 IIP bounces to 19.64% on manufacturing boost

  • India Infoline News Service
  • 13 Jul , 2022
  • 11:42 AM
After hovering around the median 2.25% mark for 5 months between November 2021 and March 2022, the IIP number jumped to 6.74% in April 2022 and further to 19.64% in May 2022. What is gratifying about the IIP growth is that the 19.64% growth in May 2022 comes on a robust growth base of 27.61% in May 2021. However, that was because of a deeply negative IIP growth in May 2020, so on a 3 year basis, the IIP may be just about coming back to pre-COVID levels.



Data Source: MOSPI

The last 13 months of IIP data can be split into 3 distinct phases. The first phase between April 2021 and August 2021, was double digit IIP growth largely on the back of a low pandemic base. Between September 2021 and March 2022, the IIP has hovered around the median rate of 2.25%. The third phase has started from April 2022 onwards, wherein the growth has again bounced back despite a solid base month. Whether, this is a 2-year base impact or genuine recovery in growth will only be evident in the next few months.

How does sectoral break-up of May 2022 IIP sound?

May 2022 is the second month of the current fiscal year FY23. A cumulative picture may at best be sketchy, but we shall still briefly look at that picture. But, let us first look at the three components of IIP viz. mining, manufacturing and electricity for May 2022. Mining sector growth for May 2022 came in at 10.90%, manufacturing at 20.63% and Electricity grew at an impressive 23.47%. While Electricity led the IIP story, the thrust came from manufacturing growth at 20.63%, especially considering its weightage of 77.63% in the IIP basket. Let us quickly look at the cumulative Apr-May numbers too. For FY23 till date, mining grew at 9.4%, manufacturing at 12.8% and electricity at 17.4%. The cumulative overall IIP growth for FY23 till date stands at an impressive 12.9%, albeit on a lower 2-year base.

When it comes to IIP, the monthly numbers go through two revisions; the first revised estimate after 1 month and the final revised estimate after 3 months. The first revised IIP estimate for April 2022 was lowered by 40 bps from 7.14% to 6.74%. Similarly, the final revised estimate for February 2022 was lowered by 31 bps from 1.46% to 1.11%. One reason for this lowering could be the impact of the various domestic and global headwinds.

Key drivers of IIP growth in May 2022

IIP growth of 19.64% for May 2022 is surely an impressive number. Here is a quick look at which specific products drove the IIP. Let us first focus on the IIP depressants. There was just one product that saw negative IIP growth in May 2022 and that was pharma & botanical products which saw de-growth of -13.1% in May 2022. Among the positive contributors were transport equipment at +129%, beverages at +128%, motor vehicles at +88.7%, apparel at +69.9%, furniture at +68.7%, electrical equipment +59.6%, wood products at +56.1%, leather products at +48.9% and machinery at +38.8%.

How does it look when you look at IIP from a use-based perspective? In terms of user groups, consumer durables grew 58.5% and capital goods at 54%. Among other user groups, the infrastructure segment grew 18.2%, intermediate goods at 17.9% and primary goods at 17.7%. However, consumer non-durables continued to show flat to tepid growth at just 0.9% for the month of May 2022 while the cumulative growth for FY23 was just 0.1%.

A quick look at the high frequency IIP numbers

We can break up the 19.64% IIP growth for May 2022 into mining, manufacturing and electricity. But, more importantly, it is the high frequency month-on-month growth that really gives you a picture of the short term momentum in the IIP basket.

Weight Segment IIP Index
May-21
IIP Index
May-22
IIP Growth
Over May-21
IIP Growth (HF)
Over Apr-22
0.1437 Mining 108.30 120.10 +10.90% +3.36%
0.7764 Manufacturing 111.50 134.50 +20.63% +2.05%
0.0799 Electricity 161.90 199.90 +23.47% +2.78%
1.0000 Overall IIP 115.10 137.70 +19.64% +2.30%
Data Source: MOSPI

There is not much of debate on the yoy numbers. IIP has grown decisively over May 2021 across mining, manufacturing and electricity. One can argue that the base of May 2020 was very low so even after 2 years of positive growth, the overall impact is almost neutral. That is technically correct, but that does not take away from the strength of the recovery. But, a clearer picture emerges from the high frequency month-on-month numbers and not from the yoy numbers. Let us turn to the high frequency numbers now.

Unlike April 2022, when high frequency IIP numbers were under a lot of pressure, May has seen positive growth in the high frequency IIP too. If you look at the table above, there is positive traction across the 3 segments of IIP on a month-on-month basis and that is indicative of the fact that the short term momentum is also favouring positive IIP growth, apart from the long term trend. The MOM growth picture shows mining +3.36%, manufacturing +2.05% and electricity +2.78%. Overall MOM IIP growth at 2.30% is in stark contrast to the negative high frequency IIP de-growth manifested in April 2022. What is also appreciable is that, this performance is despite global and domestic headwinds.

How much will the IIP data impact RBI monetary stance?

Since March 2022, the RBI tune has been about controlling inflation above all else. For now, the inflation continues to stay above 7% and that is the worry. Hence, the impact of the IIP number on the RBI monetary stance would be minimal. The central bank would be more worried about the fact that inflation is nearly 300 bps above the preferred median. The positive cues coming from the IIP front is good news for the RBI as it assures the central banks that the Indian economy has the resilience to handle a more hawkish monetary policy without compromising on industrial growth.

Global monetary policy is entering an interesting phase. There is likely to be an increasingly bitter battle between curbing inflation and avoiding an all-out recession. The US yield curve is already inverted and could make the Fed more cautious. For the August policy, one can expect another rate hike from the RBI. Beyond that, it would be purely data driven.
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IIP growth turns around to 7.11% in November 2022

  • 16 Jan , 2023
  • 7:42 AM
  • The latest IIP figure for November 2022 (IIP is announced with 1-month lag) marked a sharp turnaround in factory output growth.

It has sharply turned around from -4.22% in October 2022 to +7.11% in November 2022. In August 2022, the IIP reporting had been at (-0.68%); the first negative IIP figure after 17 consecutive months of positive IIP. However, after IIP bounced back in September into positive, the IIP had once again dipped into negative zone in October. There was a sense of disappointment with 2 negative IIPs in 3 months, but November data should come as a welcome relief.

Normally, each month, the previous month’s IIP goes through the first revision while the 3-month old IIP goes through a final revision. In the latest month, there is no final revision of the August 2022 IIP of -0.68%. However, the first revision of October 2022 IIP has pegged it 22 bps lower at -4.22%. The pressure on the IIP in October clearly was an outcome of too much hawkishness, rampant inflation and supply chain constraints.

The turnaround in the IIP growth can be partially attributed to the base effect. Between October 2021 and November 2021, the IIP growth had come down from 4.17% to 1.02%. This sharp fall in the base effect was one factor contributing to the improved IIP number in November 2022. However, that is not to take away from the fact that more optimism in the economy and hopes of rates peaking in first half of 2023 have helped output.

Despite the turnaround, we must be conscious of the plethora of global headwinds. For instance, the Ukraine war is threatening to create a full blown energy crisis and there will be more clarity when the diesel flows from Russia into EU dry up in 23 days. There are fears of a distinct slowdown in the US, UK and the EU and that is negatively impacting customers and corporates; hitting demand and exports. The two big events to watch out are the Union Budget on the 01st of February and the monetary policy after that. That could set the tone.

IIP sectoral break-up for the month of November 2022

November 2022 marks the 8th month of FY23. Hence the cumulative number is as relevant as the monthly numbers, but let us start with the 3 principal components of IIP in November 2022 first. Mining growth for November 2022 was 9.75%, manufacturing grew by 6.05% while Electricity grew at 12.71%. Overall growth in IIP for November 2022 at +7.11% was a sharp turnaround from the negative lows of October, when IIP had dipped by -4.22%. 

Here is a quick look at the cumulative picture for the first 8 months of FY23 from April 2022 to November 2022? For FY23 till date, mining grew at 4.7%, manufacturing at 5.0% and electricity at 9.8%. The cumulative IIP growth for FY23 till November 2022 stands at 5.5%. The cumulative IIP is almost flat compared to October 2022. IIP has gravitated towards manufacturing; which is obvious considering its 77.63% weightage in the IIP basket.

How the product basket moved IIP in November 2022

IIP growth of +7.11% for November 2022 reflects a sharp turnaround after the lows of October. One thing is apparent from the IIP data that there is internal optimism about the Indian economy and that is boosting output and inventory build-up. Let us first focus on the positive triggers for the IIP in November 2022. Products that triggered the positive surge in IIP for November 2022 include Transport Equipment (+24.0%), Motor Vehicles (+22.2%), Printing and Media (+22.1%), Machinery & equipment (+20.8%), Non-metallic minerals (+19.8%), Furniture (+15.7%), food products (+9.9%) and beverages (+8.2%).

Now for the IIP depressants. Among the key items that pulled down IIP growth in November 2022 were Apparel (-11.7%), Textiles (-9.0%), tobacco products (-5%) and leather products (-2.0%). If you look at the mix of the IIP depressants, most of them are export dependent sectors. Clearly, the global uncertainty and central bank hawkishness has had a sharp impact on exports. However, if you look at the cumulative IIP for first 8 months to November 2022, there are only 4 sectors with negative cumulative growth, so the data is still good.

How does the IIP look from a use-based perspective for November 2022? In terms of user groups, Primary Goods grew 4.7%, Capital Goods grew 20.7%, Intermediate goods grew by 3.0% and infrastructure goods grew by 12.0%. The good news was the turnaround in consumer durables demand to 5.1% and the bounce in consumer non-durables to 8.9%. If recession fears was the slogan till October, there seems to be  whiff of optimism in industry in the month of November 2022.

How does the high frequency data appear in November 2022?

We can break up the 7.11% IIP growth for November 2022 into mining, manufacturing and electricity. But, more importantly, it is the high frequency month-on-month growth that gives a precise picture of short-term momentum in the IIP basket. By month on month, we refer to the sequential performance of November over October data.

WeightSegment

IIP Index

Nov-21

IIP Index

Nov-22

IIP Growth

Over Nov-21

IIP Growth (HF)

Over Oct-22

0.1437

Mining

111.80

122.70

+9.75%

+9.07%

0.7764

Manufacturing

128.90

136.70

+6.05%

+6.55%

0.0799

Electricity

147.90

166.70

+12.71%

-1.54%

1.0000 

Overall IIP

128.00

137.10

+7.11%

+6.03%

Data Source: MOSPI

That appears to be a lot of positive vibes on the IIP front in November. Not only is yoy IIP smartly higher, but even sequential MOM IIP is up 6.03%. The good news is the sharply positive short term vibes from mining and manufacturing, although electricity was in the negative in terms of high frequency growth. The data for November is exactly the reverse of October. The only question is whether this enthusiasm and euphoria can really sustain?

How much hawkish will the RBI be?

In its December 2022 policy, RBI restricted hawkishness to just 35 bps instead of its usual 50 bps. It almost appeared to be taking a cue from the US markets. The first advance estimate of GDP for FY23 that was released on 07th January 2023, has pegged full year GDP growth at 7.0%. That means; India will be the fastest growing large economy globally. However, this puts the RBI in a fix. It needs to still hike rates to curb inflation, but sustained growth also needs reasonable cost of funds. 

In the last two MPC meets, the debate was getting split. Members like Ashima Goyal and Jayanth Varma are veering towards a less hawkish stance. They want RBI to go slow on rate hikes now. However, the other four members are still tilting towards hawkishness so that the last vestiges of excess inflation are eliminated. It is a tough choice, but the RBI may pause in February and then effect another 50 bps rate hike before topping out. The real challenge here is to ensure that in the enthusiasm to curb inflation, growth is not curbed.

RBI has already substantially front-loaded rate hikes; pushing up repo rates by 225 bps since May 2022. Rates are now 110 bps above the pre-COVID rate and almost at the neutral rate, beyond which the impact on growth would be visible. The best the RBI and the government can do is to tone down the impact of what they can control; which is the cost of funds. The current approach is not conducive to a full-fledged macroeconomic recovery.

 

Apr-22 IIP bounces to 7.14% on all-round improvement

  • India Infoline News Service
  • 12 Jun , 2022
  • 10:37 PM
After hovering around the 2% mark for 5 months between November 2021 and March 2022, the IIP number jumped to 7.14% in April 2022. April 2020 was the worst month in terms of COVID impact when the IIP index had fallen to as low as 54. Hence on a 3 year period compared to pre-COVID levels, the IIP growth would still be tepid. The bigger challenge would be to sustain this level of IIP growth in coming months.




Data Source: MOSPI

The last 13 months of IIP growth can be split into 3 phases. The first phase between April 2021 and August 2021, was double digit IIP growth but that was more due to a low base. While September and October were the adjustment period, the pressure was visible since November 2021, when IIP was hovering consistently around 2%. From that perspective, April 2022 is the first month when we have seen meaningful and tangible bounce in IIP.

Break up of sectoral growth in IIP – April 2022

Quite obviously, April 2022 being the first month of FY23, a cumulative picture will hardly add any value. Hence, we will stick to monthly picture of the IIP growth and focus on the three key components of IIP viz. mining, manufacturing and electricity. Mining sector growth for April 2022 came in at 7.81% while Electricity grew at an impressive 11.78%. The power sector growth was led by higher power demand, catered to with adequate supply of domestic and imported coal. The big positive story was 6.34% yoy growth in manufacturing which has a weight of 77.63%; which is why IIP tends to gravitate towards manufacturing.

When it comes to IIP, the monthly numbers go through two revisions; the first revised estimate after 1 month and the final revised estimate after 3 months. It gives an idea of how the current IIP could get modified. The final IIP estimate for January 2022 was upgraded by 52 bps from 1.46% to 1.98%. At the same time, the first revised estimate for March 2022 was also upgraded by 35 bps from 1.85% to 2.20%. The good news is that actual IIP numbers are being revised above the quick estimates, despite a series of headwinds like war, central bank hawkishness, spectre of inflation and supply chain bottlenecks.

Product wise view of the April 2022 IIP

IIP growth of 7.14% is surely an impressive number for April 2022. Here is a quick look at which specific products drove the IIP. First a quick look at the depressants. Some of the products that saw negative growth IIP in April 2022 included textiles at -0.3%, paper products -5.4%, pharmaceuticals -3.6% and rubber products -1.9%. Among the positive contributors were Apparel growing at 65.7%, furniture at 57.8%, printing 38%, beverages 29.7%, tobacco products 23.7% and coke & refined petroleum at 10.6%.

However, products only give part of the picture. Another important approach is a use-based break-up of IIP growth. Here some interesting trends have emerged. In terms of user groups, primary goods grew by 10.12% and they also have the highest weightage of 34.05%. Among other user groups, the capital goods saw growth of 14.68%, hinting at a possible revival in the capital investment cycle. But, the biggest takeaway was that the consumer segment saw positive growth for the first time in the last 6 months, hinting at consumption driven growth finally making a comeback.

What is the story behind the high frequency numbers?

We can break up the 7.14% April 2022 IIP growth into mining, manufacturing and electricity. But, more importantly, we also look at high frequency month-on-month growth.

Weight Segment IIP Index
Apr-21
IIP Index
Apr-22
IIP Growth
Over Apr-21
IIP Growth (HF)
Over Mar-22
0.1437 Mining 107.60 116.00 +7.81% -19.67%
0.7764 Manufacturing 124.60 132.50 +6.34% -8.81%
0.0799 Electricity 174.00 194.50 +11.78% +1.83%
1.0000 Overall IIP 126.10 135.10 +7.14% -9.21%
Data Source: MOSPI

In the table above, we have looked at 2 different approaches to the IIP numbers. There is yoy data and there is the high frequency month-on-month data of IIP growth. The month-on-month high frequency data in the last column, captures short term IIP trends. Here is what we can decipher from the numbers.

There is not much of debate on the yoy numbers. IIP has grown decisively over April 2021 across mining, manufacturing and electricity. Of course, if you adjust for the base volatility in the last two years, the actual growth may not be too impressive, but we will leave that aside for now. The good news is that despite IIP index doubling in April 2021, the April 2022 IIP has still shown impressive positive growth of 7.14%. That is the key takeaway.

However, there is a lot of pressure on high frequency data. If you look at MOM IIP numbers, only the power sector has maintained the short term momentum, while mining and manufacturing are feeling the pressure of global cues. The MOM growth picture shows mining (-19.67%), manufacturing (-8.81%) but electricity (+1.83%). Overall MOM IIP growth at -9.21% is in stark contrast to the positive MOM growth manifested in March 2022. The combination of a high base and short-term headwinds played spoilsport.

With the IIP data impact the RBI monetary stance

The RBI has already undertaken 2 rounds of repo rate hikes in the last 2 months. The hike was 40 bps in May 2022 and 50 bps in June 2022. One thing is clear that the RBI is going to attack inflation above all else. For now, that appears to be the game plan. The RBI has underlined in its policy statement that growth may be fundamentally salutary, but inflation is grossly unjust. For now, the first focus of the RBI will be to reining inflation, which has touched 7.79% for April 2022. The target is the median 4%; with 2% leeway both ways.

In the last few months, two things have happened. Most of the global central banks like the Federal Reserve, Bank of England, Reserve Bank of Australia and the RBI have taken up inflation control as their primary focus. World Bank has downsized growth and that is a risk global economies are preparing for. That will surely impact IIP in the coming days. For now, the days of government accommodation to boost growth are well and truly over.

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  • 16 January, 2023 |
  • 2:27 PM

The latest IIP figure for November 2022 (IIP is announced with 1-month lag) marked a sharp turnaround in factory output growth.

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