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India IIP Aug'20 Analysis – Sixth straight month of contraction
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The industrial production contracted by 8 per cent in August, mainly due to lower output of manufacturing, mining and power generation sectors. The IIP had contracted by 1.4 per cent in August 2019. The IIP in July had contracted 10.4 percent, which was better than 15.7 percent in June.

  1. Manufacturing sector production registered a decline of 8.6 per cent, while the output of mining and power segments fell 9.8 per cent and 1.8 per cent, respectively.
  2. Power production may soon register YoY growth instead of registering contraction. It contacted by 1.8 per cent in August 2020 as compared to 2.5 per cent in July and 10 per cent in June. However, the road for the other two broad-based segments, namely manufacturing and mining still looks distant
  3. While primary goods declined faster in Aug’20, consumer non-durables exhibited contraction in Aug’20 as against growth in Jul’20. All other categories exhibited slower decline in Aug’20 compared to Jul’20.
  4. Consumer durables output also declined by 10.3 per cent, as against a contraction of 9.7 per cent in August 2019. Consumer non-durable goods production fell 3.3 per cent, compared to a growth of 3.1 per cent a year ago.
  5. Output of capital goods, which is a barometer of investment, fell by 15.4 per cent in August as against a contraction of 20.9 per cent earlier.
  6. Coal production increased 3.6 per cent on-year in August after four months of contraction, due to improvement in offtake level. Fertilizer output continued to grow at 7.3 per cent in August as compared to 6.9 per cent in July. The output of key industries was revised in July to (-) 8 from (-) 9.6 per cent. It had shrunk 0.2 per cent in August, 2019.
  7. As per use-based classification, the indices stand at 108.4 for primary goods, 75.0 for capital goods, 126.6 for intermediate goods and 127.7 for infrastructure/ construction goods for the month of August 2020.  Further, the indices for consumer durables and consumer non-durables stand at 109.4 and 139.6 respectively for the month of August 2020.

 

The bounce from the lows of April was all about momentum, now it will have to address practical problems like weak demand, supply chain constraints and labour shortages. As of now the MPC has held the rate cuts as the supply shock pressure is in the economy. Going ahead the promise to keep monetary policy accommodative stems would be tougher. The RBI may further cut rates only after the inflaon falls below the RBI's comfortable band of below 6%.The next few IIP announcements could be critical.


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