Factory output shrinks 55.5% in April; Full retail inflation data not out

The ministry of statistics & programme implementation withheld the headline retail inflation figure for May but official data showed retail food inflation rose 9.28 per cent on year last month. It had also withheld the headline inflation number fo...

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The 55.5 per cent decline in factory output is the sharpest since at least April 1994.
New Delhi: India’s industrial production shrank by a record 55.5 per cent in April from the year earlier with manufacturing crashing 64.3 per cent, as computed from data released by the government, which didn’t provide a number for the change from April 2019 because of the Covid-19 lockdown.

The ministry of statistics & programme implementation also withheld the headline retail inflation figure for May but official data showed retail food inflation rose 9.28 per cent on year last month. It had also withheld the headline inflation number for April on the grounds that the data wasn’t reliable because of the lockdown. One expert pegged retail inflation at 5.2 per cent.

“In view of the preventive measures and announcement of nationwide lockdown by the government to contain spread of Covid-19 pandemic, majority of the industrial sector establishments were not operating from the end of March 2020 onwards,” the National Statistical Office (NSO) under the ministry said in a statement on Friday.


India imposed a nationwide lockdown on March 25 to curb the coronavirus outbreak. Curbs were eased starting early May in order to get the economy moving again.

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This impacted production in April, with a number of responding units reporting zero production. “Consequently, it is not appropriate to compare the IIP of April 2020 with earlier months and users may like to observe the changes in IIP in the following months,” the NSO said, adding that these quick estimates will undergo revisions in subsequent releases as per policy.

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The 55.5 per cent decline is the sharpest since at least April 1994.

For retail inflation, the government said that due to continued limited market transactions of products in May as well, it released the price movement of sub-groups/groups of consumer price inflation (CPI) based on the price of only those items that were included which have been reported from at least 25 per cent of markets, separately for the rural and urban sector and constituted more than 70 per cent weight of the respective sub-groups/groups.

“We estimate headline CPI is around 5.2 per cent and IIP contraction is at 55.5 per cent. We believe core CPI may be undershooting 3.5 per cent in April. We expect NSO to give out IIP and CPI estimates even if it is provisional as structural break in the series is unwarranted,” said State Bank of India chief economist Soumya Kanti Ghosh.

Chief economic adviser K Subramanian said reduced output had been factored in by the government. “I think this year the growth being very low and… a decline in output is something that is part of our working assumptions,” Subramanian said at a virtual press conference on Thursday. However, a possible recovery in the second half of the year or next year was also part of the government’s baseline expectations, he said.

GDP Outlook

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Most private economists and multilateral organisations have forecast a contraction of 3.5-5 per cent in India’s FY21 GDP.

Independent economists said the recovery of both demand and supply would be uneven over the next few months as activity slowly normalises. They also pointed at the data being constrained by paucity of information.

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“While the data is not comparable, the trend is correct. It is very well known that activity came to a complete standstill in April. It would be difficult to gauge the magnitude of the fall because data is not comparable,” said Kotak Mahindra economist Upasna Bhardwaj.

“The available lead indicators point to a modest recovery in May in some of the sectors that were acutely affected by the lockdowns, such as rail freight, GST (goods and services tax) e-way bills, and fuel and electricity consumption,” said ICRA principal economist Aditi Nayar. “Accordingly, we expect some improvement in the level of industrial output in May relative to the previous month.”

Broad-based contraction
Official data showed that the worst-affected categories in April were consumer durables, capital goods and infrastructure/construction goods, with end demand severely constrained by the lockdown. Capital goods output, an indicator of investment, contracted 92 per cent while consumer durables output shrank 95.7 per cent compared with a 33.1 per cent contraction in March.
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