Factory output shrinks sharply in June to 16.6%

India’s factory output contracted sharply for the fourth straight month in June, though at a slower pace than in May, signalling the gradual normalisation of manufacturing activity; however, localised lockdowns to curb the spread of the Covid-19 pandemic could hamper the process of economic recovery.

Data released by the National Statistical Office on Tuesday showed the Index of Industrial Production (IIP) contracted 16.6% in June against a 34% contraction in May.

During the June quarter, IIP contracted 35.3%, which may heavily weigh on GDP growth for that quarter, data for which is scheduled to be released by end August.

In June, manufacturing activity improved the sharpest, with the output shrinkage at 17.1% against the 38.4% contraction in May, while the contraction in mining (19.8%) and electricity (10%) sectors showed little improvement.

Among use-based categories, capital goods and consumer durables recorded the sharpest sequential improvement in June, even as these sectors continued to lag in comparison to other categories, reinforcing the view that the discretionary portion of the industrial sector will take longer to revive.

The sharp turnaround in consumer non-durables to a double-digit expansion at 14% in June is likely to have been driven by the rebuilding of inventories that were depleted during the lockdown months and may not sustain at such high levels after the restocking is completed. Out of the 32 manufacturing sub-sectors, only pharmaceuticals (34.6%) and tobacco (4.5%) recorded growth.