Factory production in maximum eight months

India’s factory output expanded for the second month in a row in October, indicating that the economy is gradually retracting from disruptions related to the coronavirus pandemic.

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

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

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

Positive signs

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Positive signs

On the basis of a 6.6% contraction in October 2019, the 3.6% growth in IIP in October this year is decidedly modest and warrants caution in interpreting the strength of the economic recovery, said Aditi Nayar, ICRA Chief Economist. Limited.

“A variety of available indicators, such as coal production, electricity, non-oil exports and e-way GST (goods and services tax) bills have revealed that the pace of growth has stalled in November, due to a combination of Unfavorable base effect, fewer working days related to the change in the holiday calendar, as well as some slack after the satiety of repressed demand ”, he said.

“Based on available information, we anticipate a drop in IIP growth in November. Furthermore, at this time a slide towards a slight contraction in November cannot be ruled out, “he added.

Capital goods production turned positive after a 21-month gap, expanding to 3.3% in October, indicating that companies are making new investments. Consumer goods production expanded 17.6%, indicating strong holiday demand, while non-durable consumer goods grew 7.5%.

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

“The data at the double-digit level also corroborates the inequality of the current recovery. Although 14 of the 23 industrial groups, with 74.1% by weight in the manufacturing IIP, had positive growth in October 2020, the production of only 10 industrial groups, with 39.8% by weight, exceeded the level production of February 2020, “he added.

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

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

The Asian Development Bank projected on Thursday that the Indian economy will contract at a slower pace of 8% compared to its previous estimate of 9% in fiscal year 21 due to a faster recovery in Asia’s third-largest economy. .

The Reserve Bank of India projected last week that the economy will contract 7.5% in fiscal year 21, less than the 9.5% contraction it projected just two months ago.

However, S&P Global Ratings earlier this month stood firm in its forecast for a 9% contraction in the country’s GDP, saying it would await further evidence of a sustained recovery in economic activities.

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