IIP, the official tracker of monthly economic activity in mining, manufacturing and electricity generation contracted in January, in contrast with some high frequency indicators such as Purchasing Managers’ Index for manufacturing which has been doing very well in the past few months
UPDATED ON MAR 16, 2021 12:20 PM IST
The post-pandemic recovery in manufacturing is still fragile
That the economy has recovered after removal of lockdown related restrictions is beyond doubt. The GDP growth figures — they have improved from a 24.4% and 7.4% contraction in the quarters ending June and September 2020, to 0.4% growth in the December quarter — are the biggest proof of this. The Gross Value Added (GVA) component of manufacturing has also shown a steady recovery from a 35.9% and 1.5% contraction in the June and September 2020 quarters to a 1.6% growth in the quarter ending December 2020.
However, a look at the monthly IIP and core sector growth numbers tells a different story. While there was an uninterrupted recovery from May to September 2020 – India imposed a lockdown beginning March 25, 2020 and started gradually removing restrictions from May onwards – its nature has become erratic after that. For example, the manufacturing component of IIP slipped into contraction zone in November 2020, recovered in December and has gone back into contraction mode in January . Similarly, the Index of Eight Core Industries slipped back into contraction zone in October and November 2020. While it re-entered positive growth territory in December 2020, it lost growth momentum in January.
The picture is even more bleak if the base effect is filtered out
The Indian economy was facing a protracted slowdown even before the pandemic threw economic activity into disarray. This also means that there is a favourable base effect at play for calculating post-pandemic annual growth rates for most economic indicators. A comparison of annual growth in IIP’s manufacturing component and Eight Core Industries in January shows this clearly. Growth rate of both these indicators has been lower since January 2019 than it used to be earlier. The January contraction in IIP’s manufacturing component and marginal growth in Eight Core Industries has come on the back of already low growth rate in January 2019 and January 2020. The absolute value of IIP’s manufacturing component in January was actually lower than even the January 2019 value.
Manufacturing has consistently lost momentum over the past decade
The predicament of India’s manufacturing sector is not a story of a slowdown in the last couple of years. A long-term analysis of Gross Value Added (GVA) data from the Centre for Monitoring Indian Economy’s (CMIE) database shows that there has been a long-term deceleration in manufacturing growth in the last decade. A comparison of compound annual growth rate (CAGR) in manufacturing GVA across decades shows this. While manufacturing growth gained momentum in the 1990s and 2000s, the CAGR went down between 2011-12 and 2019-20. The current financial year (2020-21) has been excluded to filter out the pandemic’s disruption. While overall economic growth itself lost momentum between 2011-12 and 2019-20, manufacturing lost more in growth than the overall economy.
What is to be done?
India’s manufacturing challenge has a short-term and long-term aspect to it. While it is crucial that the current manufacturing activity picks up on a sustained basis and at least attains pre-pandemic levels, any sense of complacency based on the improvement in numbers from March onwards — largely due to a favourable base effect — risks side-tracking the economy’s attention from the larger challenge of overcoming what is clearly a prolonged slowdown in Indian manufacturing. A rejuvenation of India’s manufacturing sector growth will take both demand- and supply-side interventions.
The demand-side aspect of it is more pertinent in dealing with the short-term challenge. One of the biggest reasons for a disappointing growth in January IIP was poor performance of the consumer goods sector, which contracted 4.2% on an annual basis. When read with latest findings (January) from the Reserve Bank of India’s Consumer Confidence Survey (CCS) — the CCS is conducted in India’s 13 major cities, and measures perception on general economic situation as well as spending on non-essential items – which continued to be in negative territory, it is clear that industrial production is facing a demand constraint. The growth in previous months can be attributed to what many economists have described as being caused by pent-up demand. Unless this changes, a sustained recovery will not materialise.
To be sure, demand is not the only challenge facing India’s manufacturing. This year’s Economic Survey compared the export performance of India and Bangladesh and concluded that one reason why Bangladesh has done better on this front is that it has specialised in exporting goods where it has a comparative advantage. Given the fact that both India and Bangladesh are labour abundant countries, their comparative advantage would lie in exporting labour intensive goods. “While Bangladesh’s export basket is in keeping with this economic reality — textiles, footwear and apparel constitute 90% of its exports — around 40% of India’s exports are capital or technology intensive”, the Survey found out.
Given the fact that India’s domestic market is much bigger than Bangladesh’s — India’s GDP in current US dollars was $2.9 trillion in 2019 compared to Bangladesh’s $302.6 billion – a revival in mass demand for labour intensive products could generate the necessary tailwinds for export competitiveness as well. This is what former RBI governor Raghuram Rajan suggested when he made a case for a ‘Make for India’ instead of ‘Make in India’.
PUBLISHED ON MAR 20, 2021 01:49 PM IST
Demand has soared for chips in recent months, with panic buying further squeezing capacity and driving up costs of even the cheapest components of nearly all microchips.
PUBLISHED ON MAR 20, 2021 01:48 PM IST
- The Kolin factory will be on hiatus from Monday, March 22, due to low supplies of semiconductors caused by production delays after the cold weather in the US, spokeswoman Shiori Hashimoto said Saturday. The facility assembles the compact car Aygo for the European market.
- Here’s a checklist of all the financial tasks which need to be performed before March 31, 2021
By Shayan Ghosh, Livemint, Mumbai
PUBLISHED ON MAR 20, 2021 07:31 AM IST
- The course content, the bureau said, should necessarily be designed for induction of new directors, the orientation of nominee directors and knowledge updates for seasoned directors.
By Shayan Ghosh, Livemint, Mumbai
PUBLISHED ON MAR 20, 2021 07:25 AM IST
- Household financial savings stood at 10.4% of the nation’s gross domestic product (GDP) in the July-September period of FY21, down from 21% of the GDP in Q1 of FY21.
By Anirudh Laskar, Livemint, Mumbai
PUBLISHED ON MAR 20, 2021 07:21 AM IST
- Two people familiar with Future Group’s legal plans confirmed this to Mint, adding that an appeal challenging the order may be filed on Monday or Tuesday.
By Gopika Gopakumar, Livemint, Mumbai
PUBLISHED ON MAR 20, 2021 07:16 AM IST
- RBI said that while it is doing all that it could to ensure an orderly evolution of the yield curve, bond vigilantes could, however, unsettle financial markets and trigger capital outflows from emerging markets.
By Anirudh Laskar, Livemint, Mumbai
PUBLISHED ON MAR 20, 2021 07:11 AM IST
- Markets regulator had earlier sought to value AT1 bonds as 100-year debt papers with effect from April.
PUBLISHED ON MAR 20, 2021 04:39 AM IST
Zomato recently raised $250 million from investors including Kora Management and Fidelity Management & Research Co., valuing the startup at $5.4 billion.
Posted by Harshit Sabarwal | Reuters
PUBLISHED ON MAR 19, 2021 11:00 PM IST
The department’s antitrust division has been probing whether Visa limited merchants’ ability to route debit-card transactions over card networks that are often less expensive, according to the Wall Street Journal, which was first to report the probe.
PUBLISHED ON MAR 19, 2021 10:59 PM IST
Crude oil throughput in February dropped 8.8% year-on-year to 4.87 million barrels per day (18.62 million tonnes), provisional government data showed on Friday.
Posted by Harshit Sabarwal | AP, London
PUBLISHED ON MAR 19, 2021 10:45 PM IST
At a virtual discussion hosted by Britain’s Treasury chief, Rishi Sunak, the seven finance ministers backed a “new and sizeable” increase in the IMF’s Special Drawing Rights, a type of reserve that effectively supplements existing reserves of member countries.
Posted by Harshit Sabarwal | Bloomberg
PUBLISHED ON MAR 19, 2021 10:24 PM IST
This month, the world’s largest retailer began opening up its third-party marketplace to foreign sellers, who no longer need a US address or business tax identification.
PTI, New Delhi
PUBLISHED ON MAR 19, 2021 07:28 PM IST
TCS was the first IT services company to announce a salary hike for all employees for FY21 in October last year.
PTI, New Delhi
PUBLISHED ON MAR 19, 2021 06:59 PM IST
Speaking at the International Conference on Disaster Resilient Infrastructure (ICDRI), the finance minister said natural disasters remind everyone of the risks that infrastructure faces and the vulnerabilities of countries due to climate change.