Based on the first revision of January ’21 data and final revision of November ’20 data, the IIP data for February ’21 do confirm the apprehension that lots of challenges are still left to revive the industrial growth in the aftermath of the adverse impact of the pandemic.
Apart from a few segments led by automobile, tractors, 2 wheelers and FMCG products, the other segments of industry are yet to swim into the positive territory. And the data truly reflect what is happening in the field. For instance, mining activities are yet to commence after the completion of the auctioning process. In the first 11 months of the current fiscal, the sector has degrown by nearly 10%. The electricity generation for the month of February is marginally positive. However, the manufacturing sector (weight: 77.6%) during the month has dipped by 5% compared to January and for the full year it is down by 12.6%, thereby pulling down the total IIP to a negative 11.3%.
Analysing the segments under manufacturing, it is observed that basic metals (weights:12.8) is in the negative category by a higher margin than in January’21. Total crude steel production in the country is around 6-7% lower than the previous year. A part explanation to this degrowth could be loss of 3 working days in February.
Among other major items under manufacturing, the manufacture of coke and refined petroleum products (Wt: 11.8) had a steep decline in production in the month. The manufacture of chemical products (wt: 7.8) has a marginal fall in output and the same is true for food products (wt: 5.3) also.
The manufacture of motor vehicles, trailers and semi-trailers (wt: 4.9) is showing a 4.9 per cent growth in the month compared to last year. However, cumulatively the index is negative. The auto sector has observed a production growth of 15.36% in February’21 with positive growth in sales observed in passenger cars (17.92%), in two wheelers (10.2%). The manufacture of other transport equipment (wt: 1.8) is also positive during February’21 as shown by higher procurement of railway materials, although building of ships is still subdued. The manufacture of electrical equipment (wt: 2.99) grows by 3.2% during the month which coincides with recent growth in production of electrical sheets and CRC sheets.
The capital goods ( comprising of pressure vessels and tanks, power generating equipment, transformers, material handling equipment, furnaces, tractors, agricultural machinery, mining machinery, textile machinery, wagons and coaches etc.) has borne the maximum adverse impact of the Covid 19 pandemic.
The Budget for FY22 has earmarked a capital investment of Rs 5.54 lakh crore on infrastructure and it is expected that the index for capital goods would enter into the positive territory in the next 2-3 months. The intermediate goods (comprising of pipes and tubes, fasteners, gear box, ball bearings etc.) have cumulatively degrown by 12.2% in the first 11 months of the last fiscal. The infra/construction goods (wt: 12.34, comprising of steel frameworks for tower construction, pre fabricated concrete blocks etc) is steel-intensive has also observed the same degrowth of 12.2%.
The positive signal is shown by consumer durable segment (wt: 12.84) that has grown by 6.3% in the month, however, cumulatively needs to do much more to enter into a positive territory. It comprises of a host of domestic appliances ( SS utensils, AC, washing machines, refrigerators, passenger cars, auto components, 2 wheelers, bicycles etc).
The demand for consumer products is primarily based on rise in disposable income and the propensity to spending by the households. It is seen that rate of growth in PFCE (private final consumption expenditure) is going at the rate of 20 per cent in Q2 of Fy21 to 18.4% in Q3 and it is maintaining similar growth rate in Q4 also.
Thus IIP is most likely to enter in the positive category shortly as more data on output in the previous months are compiled and commencement of investment in infrastructure sector as indicated in the Budget and in the process the capital formation would have a much larger role to play in driving economic growth of the country in the coming months.
In fact this simple rationale has worked in shaping the recent forecasts made by IMF which has increased the GDP growth for USA to a record 6% to be driven by a massive $1.9 trillion stimulus measure in the form of investment in infrastructure (funding for highways, roads, rail network, airports, supply of clean drinking water, building of communication network, affordable housing etc) in addition to another @2 trillion investment made in December’20.
The projection for GDP in India to grow by 12.6% in 2021 is based on the premise that the pandemic is controlled with suitable vaccination and fixed asset investment in infrastructure goes up significantly by the government push for higher level of public investment. While innovative long term funding and asset monetisation would provide funds for public investment, private corporate investment supplemented by FDI must flow in real estate, storage and warehouses, renewable energy, mining, capital goods and construction equipment, logistic and transportation segments.
An ever growing manufacturing and industrial sector is the culmination of successful implementation of all these economic projects. .
—Views expressed are personal
The author is Former DG, Institute of Steel Development and Growth