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India’s factory output expanded for the second straight month in October, signalling the economy is gradually climbing back from disruptions related to the coronavirus pandemic.

The index of industrial production (IIP), a measure of output at factories, mines and utilities, rose by 3.6% in October, the fastest in eight months, data released by the ministry of statistics on Friday showed.

The recovery was led by manufacturing (3.5%) and electricity (11.2%), while mining output continued to contract (-1.5%).

Most economists, however, cautioned against interpreting the data as signs of a sustained recovery as the October data was boosted by a low base effect and festive demand.

Positive signs
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Positive signs

Coming on the base of a 6.6% contraction in October 2019, the 3.6% growth in the IIP in October this year is decidedly modest, and warrants caution in the interpretation of the strength of the economic recovery, said Aditi Nayar, principal economist at ICRA Ltd.

“A variety of available indicators such as the output of coal, electricity, non-oil exports and GST (goods and services tax) e-way bills have revealed that the pace of growth has flagged in November, on account of a combination of an unfavourable base effect, fewer working days related to the shift in the festive calendar, as well as some slack after the satiation of pent-up demand," she said.

“Based on the available information, we anticipate a slide in the IIP growth in November. Moreover, a slippage back into a mild contraction in November cannot be ruled out at this point," she added.

Capital goods output turned positive after a gap of 21 months, expanding at 3.3% in October, indicating businesses are making new investments. Consumer goods production expanded 17.6%, signalling robust festive demand, while consumer non-durables grew at 7.5%.

“However, the continued contraction of primary goods and marginal growth of intermediate goods suggest that the current recovery is uneven," said Sunil Kumar Sinha, principal economist at India Ratings and Research.

“The data at the two-digit level also corroborates the unevenness of the current recovery. Although 14 out of 23 industry groups, having 74.1% weight in manufacturing IIP, had positive growth in October 2020, production of only 10 industry groups, having 39.8% weight, breached February 2020 production level," he added.

India’s gross domestic product (GDP) shrank 7.5% in the September quarter, improving from a record quarterly contraction of 23.9% in the preceding three months.

Since then, many agencies have raised their growth forecasts for India.

The Asian Development Bank on Thursday projected the Indian economy to contract at a slower pace of 8% against its earlier estimate of 9% in FY21 on the back of a faster recovery in Asia’s third-largest economy.

The Reserve Bank of India last week projected the economy to contract 7.5% in FY21, shallower than the 9.5% contraction it projected just two months ago.

However, S&P Global Ratings earlier this month stuck to its projection of a 9% contraction in the country’s GDP, saying that it would await more proof of sustained recovery in economic activities.

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