With the lockdown getting extended till July 31, 2020 across most key industrial geographies, the pressure on IIP may continue for some more time. Like in April, the MOSPI has only revealed the index numbers and the growth (or the absence of it) has to be calculated using calculators and spreadsheets.
Like in the case of April IIP, MOSPI has started off with a caveat that the data of May-20 is not comparable with previous months. That is correct since the lockdown represents an event that is an aberration off the normal. However, it is hard to fathom the reason for not putting down the actual de-growth numbers in the MOSPI report. As can be seen from the chart above, the pressure on the IIP continues, almost in an unrelenting manner, but the extent of de-growth in May is not as worrisome as it was in April 2020. That may be the redeeming feature, although small consolation for the Indian economy.
Crux of the IIP lies in its components
As mentioned earlier, MOSPI has desisted from giving clear percentage de-growth numbers. However, the same can be easily calculated with the index numbers given. All the 3 segments of IIP continue to remain under pressure as shown in the table.
Mining and electricity with a combined weightage of 22.36% did not do too badly relative to the overall economy. For the month of May-20, mining activity compressed by (-20.98%) while electricity generation contracted by (-15.43%). Both these segments showed an improvement over the previous month. Non availability of labour and friction in logistics remain a challenge for these sectors.Manufacturing de-growth was (-39.32%) but that was still better than the (-64%) de-growth last month.
A clearer picture will emerge if we look at IIP in terms of specific products. There were some positive surprises. Pharmaceutical manufacturing was 3% higher in May-20 while chemicals and non-metallic minerals did not fall too sharply. Even food products and refined petroleum products did not fare too badly. On the negative growth front, some of the products that saw deep cuts in output were beverages, tobacco products, textiles, wood products, computers, electronic, electrical goods, heavy machinery, motor vehicles and transport equipment.
How does the user industry perspective stack up?
Looking at the IIP data through the lens of user industriesgives a much better insight into labour and supply chain issues hindering production.
|Weight||Segment||Base||Index||Use Based IIP Growth|
|0.12||Infrastructure / Construction||145.00||84.10||-42.00%|
Will there be Stimulus 3.0 from the government?
That is the billion dollar question! The government has already infused close to $300 billion via two rounds of monetary and fiscal stimulus. The government is working overtime to raise Rs.20,000 crore to fund another stimulus but at 5.5% fiscal deficit, the manoeuvring space is fairly limited. One thing appears to be amply clear. Rates are likely to remain low for quite some time till growth actually picks up to pre-COVID levels. For now, the IIP is not giving any clarity on how growth could pan out post the second quarter.