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India’s factory output grew 134% in April, lifted by an extraordinary base effect as industrial activity ground to a halt the same month a year earlier due to the national lockdown to limit the spread of covid-19.

In April 2020, the Index of Industrial Production (IIP) had contracted 55.5%. The favourable base may bump up IIP till August this year.

Most economists suggested looking through the exaggerated growth number, which presents a false sense of normalcy even as the rampaging second wave of the pandemic in April forced many states to impose lockdowns, hurting industrial activity.

On a sequential basis, IIP shrank 13% in April against a 12.3% growth in March, reflecting the hit to production activity.

The National Statistical Office did not formally compute the April IIP numbers, though it provided the indices for the month. “It may be noted that the nationwide lockdown and other measures implemented to restrict the spread of covid pandemic from the end of March 2020, had led to a majority of the establishments not operating in April 2020 and, consequently, there were many units that reported ‘Nil’ production, affecting comparison of indices for April 2020 and April 2021," it said.

Madan Sabnavis, chief economist at Care Ratings, said IIP growth numbers in April were bound to be exaggerated this year as output had come to a standstill in most sectors last year. “Therefore, the growth numbers for April, which are exceptionally high, need to be ignored. A similar situation would arise in May, too, and it would be only from June that there could be reasonable numbers forthcoming. It would be better to track PMI, e-way bills and GST collections to get a fair assessment of activity," he said.

Low base of 2020 fuels 134% jump in Apr factory output
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Low base of 2020 fuels 134% jump in Apr factory output

Most economic forecasters have cut their GDP projections for FY22 to single digits as the second wave of the pandemic is expected to have a lingering impact on consumer sentiment and hamper rural demand. The World Bank earlier this week pared its growth projection for India to 8.3% for FY22 from 10.1% estimated in April.

However, with fresh cases moderating and a phased unlocking underway, sequential momentum may gain pace, beginning June. Research agency QuantEco’s Daily Activity and Recovery Tracker (DART) index clocked a third consecutive weekly expansion in economic activity for the week ended 6 June. “With the continued ebbing of covid infections, recovery in economic activity is expected to gradually pick up," said Yuvika Singhal, an economist at QuantEco Research.

Madhavi Arora, lead economist at Emkay Global Financial Services, said pent-up demand could revive manufacturing and overall GDP growth in the fiscal second half. “We see FY22 GDP growth at 9%. The recovery ahead may again be led by capital and profits and not improving labour markets and wages," said Arora.

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