IIP may witness the lockdown effect

After a record fall in the index of industrial production (IIP) by 16.7 per cent year-on-year in March 2020, the IIP for April is bound to fall a lot more drastically, says Care Ratings. India’s nationwide lockdown lasted throughout April 2020 and has led to massive retrenchment and loss of output. One of the leading indicators of the impact of month-long lockdown in April 2020 on industrial activities would be survey-based purchasing managers’ index (PMI) for manufacturing released by IHS Markit that provides future insights in the business activities.

Manufacturing PMI dropped to a record low of 27.4 in April from 51.8 in March 2020 as the lockdown to contain the Covid-19 pandemic forced businesses to shut down and consumers to stay indoors. According to a Care Rating report, the manufacturing sector is slated to see steeper contraction during April. Since most manufacturing units were shut during the month, the industrial output was almost nil and thus are likely to see steep contraction (less than minus 50 per cent) in April 2020 namely motor vehicles, transport equipment, metals among others, the report said.

Certain industries were seen to function partially although at subpar levels such as textiles, wearing apparel, chemicals and refined petroleum products. Nevertheless, due to various constraints, even these industries are expected to see a decline in the industrial output compared with the corresponding month a year ago. Essential goods such as food products saw an uptick in production during the month due to panic-driven demand by consumers for stocking. Production of drugs and pharmaceuticals were scaled up to meet heightened demand for the treatment of Covid-19 patients. Although the mining sector was classified under essential activity, severe labour shortages and lower demand led to is expected to have weighed on the production. The mining sector may see a decline by 15-20 per cent. Electricity production could fall on account of lower demand from industrial units and considerably less household demand in the total electricity demand. The financial stress faced by the DISCOMs would also be one of the impeding factors for their demand from generation companies. Electricity production would see a dip by 20- 25 per cent during the month.

(Courtesy of Mail Today)

Also read: What the fall in IIP numbers means for Indian economy