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India’s industrial output clawed back to the positive zone in September after contracting steadily for six months, indicating a recovery from the severe slowdown following the outbreak of covid.

Factory output expanded in September by 0.24% from the year-ago period, even as the output of consumer durables such as cars and household appliances grew 2.77% after 15 successive months of contraction, data released by the statistics ministry showed.

However, the improvement comes on the back of a weak base. Industrial output had contracted 4.6% last September when consumer durables output had shrunk by 10.5%.

Capital goods output, an indicator of new investments, stayed in the negative zone but the extent of contraction seen in September—3.28%—slowed significantly from the 14.7% contraction seen in August.

With the gradual relaxation of lockdown curbs, there has been a relative improvement in economic activity by varying degrees as well as in data reporting, said an official statement.

Experts called the improvement in September factory output as small but heartening. The sharp narrowing in the contraction of capital goods is one of the biggest positives and its sustainability in the coming months will be keenly watched to gauge the recovery in investment sentiment and activity, said Aditi Nayar, vice-president and principal economist at rating agency ICRA Ltd.

“Overall, we expect the festive season push to result in a mid to high single-digit IIP growth in October 2020, although its sustenance after the festive period is over, remains uncertain," said Nayar.

Manufacturing remained in the negative zone, although the extent of contraction was only 0.6%. This sector had seen a contraction of 4.3% a year ago. The output of both mining and electricity expanded in September, although from weak bases in the year-ago period.

Besides normalization of economic activities, pent-up and festive demand has played an important role in the uptick, said Devendra Kumar Pant, chief economist at India Ratings and Research.

Economists also believe that a covid vaccine and its availability to the masses are key to addressing the uncertainty surrounding the economic recovery.

The government on Thursday announced more steps to stimulate economic growth, including more fund allocation for the rural jobs guarantee scheme.

On Wednesday, RBI said high-frequency activity indicators showed the economy rebounded sharply with the reopening of the economy, with industry normalizing faster than contact-intensive service sectors.

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