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Home >Markets >Mark To Market >How hard was second wave on manufacturing? IIP gives some answers

India’s index of industrial production (IIP), rife with credibility issues in normal times, has been particularly noisy during the pandemic. The headline data print has little meaning amid a second wave, especially in April and May because of the low base of last year. That does not mean the data has little to offer in terms of assessment.

IIP showed a year-on-year growth of 134%, mainly due to the base effect as output had contracted by a massive 22% in April 2020 due to the nationwide lockdown. But as Nomura analysts point out, the seasonally adjusted month-on-month growth was 1.1%, which shows that output was not hit hard this year due to the second wave.

As such, lockdowns this time were less stringent than the nationwide one last year. Ergo, economic activity was expected to show some continued recovery. “The resilience of industrial production in April – the first month of the lockdown – reflects less pervasive lockdowns across states this month, nuanced restrictions, strong global demand and a more pandemic-ready economy," wrote analysts at Nomura in a note.

That said, the print for May could get worse. Recall that in April, only a handful of states in the country were under lockdown. By May, a large swathe of India was under some restriction or other. “Going into May, activity is expected to take a sharper dip given extensive lockdowns," wrote analysts at Edelweiss Securities Ltd.

What does this mean for growth?

While gross domestic product (GDP) growth projections have been cut recently by most forecasters including the Reserve Bank of India (RBI), analysts believe that growth could show a surprise recovery in the second half of the year. “Beyond May/June, activity should bounce back as the infection rate has dropped materially and mobility indicators are rebounding. Besides, as mentioned earlier, exports are likely to provide a good tailwind to industrial activity," the Edelweiss report said.

The RBI expects India’s GDP growth to be 9.5% for FY22. A more pessimistic forecast of 7.9% is by State Bank of India (SBI) research wing. Which way the economic recovery swings will depend on how fast Indians get inoculated and the second wave recedes. It also depends on whether the country is able to weather a third wave, should it arrive later this year.

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