Data Source: MOSPI
There are two things to note. Firstly, the month of May-21 could be the last month of significant base effect and, going ahead, the base effect will start waning. In other words, there must now be a genuine recovery in growth, especially manufacturing growth, for IIP to pick up significantly. Secondly, the upgrades are much smaller for February and for April. But the real issue is something larger. In Apr-21, the IIP came close to the 2019 levels while in May-21, the IIP is almost 14% short; a clear indication of pressure exerted by COVID 2.0.
How does the cumulative IIP picture look for FY22?
We currently have only two data points in IIP for FY22 i.e., for April and May. That is a good base to do a yoy comparison. Let us look at each of the components. For the Apr-May 2021 period, the mining growth stood at 29.4%, manufacturing growth at 88.8% and electricity growth at 21.7%. The overall IIP growth in the first two months of FY22 showed growth of 68.8% yoy. That is more because all the 3 components as well as overall IIP for the first 2 months of FY21, were deep in the negative. If you look at the FY22 data and compare it to the corresponding FY20 data, then IIP is lower by -7.16%, indicating that COVID 2.0 delayed the IIP recovery.
Is the IIP actually growing over pre-COVID levels?
At the outset, if we break up the 29.27% IIP growth into traditional mining, manufacturing, electricity classification; it is obviously impressive on yoy basis. To get a more realistic picture, we break up the IIP into the 3 components but look at growth on YOY basis and also 2-Year growth basis. The latter gives a reasonable picture of whether output has been able to get back to pre-COVID levels.
When DIPP announced the IIP for Mar-21, it gave a yoy comparison of IIP data as well as a sequential MOM comparison of the IIP data to give out a clear picture. While announcing the Apr-21 data, the DIPP had highlighted the impact of COVID 2.0 by giving growth in IIP over 2020 and 2019, which enriched the analysis. In the May-21 IIP announcement, it looks like the DIPP reverted to its limited data presentation. However, with the index data, one can easily derive the yoy growth and post-COVID growth. Here is a quick summary.
Let us start with mining. Mining IIP is up 23.29% yoy, but when compared to May-19, the growth is down -1.85%. Manufacturing is actually disappointing. While yoy IIP is up 34.48% due to the base effect, IIP is deeply lower by -16.34% compared to May-19. In short, manufacturing with its 77.64% weightage, is yet to recoup pre-COVID levels and the impact of COVID 2.0 has been harshest on this segment. Even electricity generation was up 7.5% yoy but fell -8.52% when compared to May-19. As a result, IIP is up 29.27% on yoy basis, but on a 2-year basis IIP is sharply down by -13.89%. COVID-2.0 is, apparently, putting more pressure on the manufacturing IIP, much more than mining and electricity.
Get ready for a series of minor fiscal thrusts
If April showed that IIP was struggling to get to pre-COVID levels, then May indicates that COVID 2.0 has taken its toll on growth. That is evident from the 2-year growth. Even on a sequential basis, the growth is down nearly -7.93% compared to Apr-21. That is an indicator of the immediate impact of COVID 2.0. It looks like the optimism of the stock markets and the hawkishness of inflation is not matched by the IIP data. The message to the government is two-fold. On the one hand, the macroeconomic ecosystem of low rates and ample liquidity will have to continue. On the other hand, the government will have to plan a few intermittent bursts of fiscal support to keep manufacturing chugging along. That is the best policy option available, if you go by the IIP data for May-21.