IIP bumps up due to low base of 2nd wave of Covid-19
The low base of the second wave of Covid-19 bumped up the IIP growth to an 8-month high 7.1 per cent in April, although it trailed our expectation (9.2 per cent), led by a weaker than anticipated performance of mining.
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Mumbai June 11 The low base of the second wave of Covid-19 bumped up the IIP growth to an 8-month high 7.1 per cent in April, although it trailed our expectation (9.2 per cent), led by a weaker than anticipated performance of mining.
In terms of the use-based categories, the clear laggards were consumer non-durables and infra/construction goods, with YoY growths of 0.3 per cent and 3.8 per cent, respectively. However, these are amongst the categories that were less affected by the second wave of Covid 19 in April.
When compared with the pre-covid level of April 2019, the IIP was 6.8 per cent higher in April 2022, with a double digit growth in intermediate, infrastructure and primary goods, amidst a flattish performance of consumer non-durables, and an unpalatable contraction in capital goods and consumer durables.
Consumption remains tentative on the whole, with underlying unevenness. "Led by pent-up demand, we expect services to outperform the demand for goods in the near term, with the latter further constrained by elevated prices." Says Aditi Nayar, chief economist, ICRA.
The weak showing of capital goods output relative to the pre-Covid level confirms our view that the uptick in capacity utilisation in Q4 FY2022 will not trigger a rapid private sector capacity expansion in light of the uncertainties generated by geo-political developments.
The daily average generation of GST e-way bills dipped to a four month low in May 2022, which may be an early indication of the disruption being caused by higher prices on household budgets. Moreover, the YoY growth of non-oil merchandise exports eased in May 2022 relative to the previous month. However, most other high frequency indicators recorded an accelerating growth on a declining base in May.
Given the sharp YoY expansion displayed by most high frequency indicators in May, ICRA expects the IIP growth to rise further to 17-19 per cent in that month, on the back of a falling base related to the second wave of Covid-19 in India in May 2021.
