Concerns have been raised about the economic revival as industrial output growth slowed down to 3.2% in October. This was due to a sharp moderation in manufacturing activity. The Index of Industrial Production (IIP) has also slowed to 3.3% in September 2021 from a 4.5% in October 2020.
Manufacturing grew 2%, electricity recorded a 3.1% growth, which has been attributed to mining as it posted a strong growth. Worrying trends have been noted with the capital goods segment witnessing a contraction of 1.1% in October; consumer durables output fell over 6% – the second consecutive month of decline. And this is due to the global chip shortage hitting the automobile industry.
Aditi Nayar, chief economist at ICRA, said that even as the ongoing supply challenges in the auto sector persisted, the YoY performance of several other high frequency indicators deteriorated in November 2021, including electricity demand, GST e-way bills, port cargo traffic, etc., suggesting that economic activity lost steam after the festive season ended, with a satisfaction of pent-up demand.
Devendra Kumar Pant, chief economist, India Ratings & Research, believes industrial output is likely to follow the same trend as observed in the Periodic Labor Force Survey and weak private final consumption expenditure depicted in second quarter 2021-22 GDP numbers. “Omicron could be a disruptor in coming months. Expect a weak set of IIP numbers in rest of FY22. Weak consumption and investment trend imply that the heavy lifting to take economy out of sluggish growth has to be done by the government.”
It should be noted that the worldwide manufacturing growth also slowed in October to the weakest. Global manufacturing output growth slowed in October to the lowest recorded since the recovery from the initial pandemic lockdowns began in July 2020. The JP Morgan Manufacturing PMI Output Index, which measures monthly production changes, fell from 52.1 in September to 51.6, to signal a further cooling of the worldwide manufacturing expansion from July’s recent peak. Manufacturing output lagged growth of new orders to the greatest extent recorded during an expansion since 2004. This resulted in yet another large rise in backlogs of uncompleted work globally during October.
It has been constrained by record supply delays, which resulted in one of the steepest price increases seen in over two decades of survey history, as per IHS Markit. Moreover, manufacturers’ optimism about the year ahead has dipped to a one-year low amid concerns over persistent supply chain bottleneck, inflation and a near-stalling of global trade.