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India’s factory output accelerated sequentially 7.2% in July over the preceding month benefitting from easing pandemic restrictions and rising mobility even as fading of the low base meant year-on-year growth eased to 11.5% during the month.

In June, the index of industrial production (IIP) grew 5.7% month-on-month and 13.6% year-on-year.

Data released by the statistics department showed mining, manufacturing and electricity grew 19.5%, 10.5% and 11.1% respectively in July over the same period a year ago.

When compared with July 2019 of 131.8, IIP is marginally lower at 131.4, signaling that factory output is getting closer to the pre-pandemic level. The manufacturing index in July 2021 (130.9) was nearly as high as the level in October 2020 (132) during last year's festive season, which offers a glimpse into the strength of the revival after the second wave.

Out of 32 industry groups, manufacturing of tobacco, pharmaceuticals and furniture remained in negative territory in July. While capital goods representing investment demand in the economy expanded at 29.5% year-on-year, consumer non-durables representing fast moving consumer goods contracted for the third consecutive month at 1.8% during the month.

Recovery Path
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Recovery Path

Madan Sabnavis, chief economist at Care Ratings said a critical part would be the expected revival in demand especially for consumer goods which will make firms build up stocks from august onwards. “We may expect a high growth rate in August too as last year there was a decline in growth last year. However, from September onwards the base effect will get diluted sharply as growth was positive in the next two months," he added.

Aditi Nayar, chief economist at ICRA Ratings with an expected uptick in mining, electricity and infrastructure/construction goods, amidst a weaker performance of the auto sector, we project the IIP growth to improve to 13-15% in August.

Indian economy grew at 20.1% in June quarter, mainly because of the sharp contraction during the same quarter a year ago. S&P Global Ratings on Wednesday said Indian economy actually contracted 7.5% sequentially in the June quarter after adjusting for seasonality. However, the rating agency said it expects growth to pick up in September quarter by 13% sequentially.

The finance ministry on Thursday in its latest Monthly Economic Review said India is poised for an even faster recovery and stronger growth, both in the short and long term on the back of stronger macro-economic fundamentals supported by structural reforms that enable enhanced efficiency and productivity, “A broad based rebound in several leading macroeconomic indicators in July and August offer bright prospects for India’s continued economic recovery. With government and RBI’s unflinching commitment to put the economy back on track, India is poised for an even faster recovery in the next three quarters of 2021-22. Rapidly increasing vaccination coverage and richer experience with pandemic management provide the confidence that the recovery can be continued even in the event of a third wave," the report released by the Department of Economic Affairs said.

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