Business & Finance

IIP Contracts By 3.6% In Feb, Retail Inflation Soars To 5.5%

The IIP continued to contract in the fiscal year 2020-21, with the industrial sector contracting by -11.3 per cent compared to the 1% growth it saw in the corresponding period a year ago.

 

Industrial production, measured by the Index of Industrial Protection (IIP) slumped to a 6 month low and contracted by 3.6%, putting the post-COVID economic recovery in jeopardy, amid a high surge in COVID-19 infections. However, retail inflation, as measured by the Consumer Price Index (CPI) rose to 5.5% in March, within touching distance of RBI’s upper margin of 6%

A second wave of the pandemic, subsequent lockdown, transport and activities restrictions, means that the numbers are likely to slump further. The IIP numbers have performed worse than predicted, according to a Reuters report. This is evident in the fall of indicators like the Nomura India Business Resumption Index (NIBRI) which fell to 90.7 points in the week ending April 4.

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Having said that, a favourable base due to the 2-month long nationwide lockdown in 2020, the current economic figures might not be able to capture the overall grim situation. The IIP continued to contract in the fiscal year 2020-21, with the industrial sector contracting by -11.3 per cent compared to the 1% growth it saw in the corresponding period a year ago, government data showed. The manufacturing and mining sector, which is part of the IIP, saw a contraction of -3.7% and -5.5% respectively.

Inflation

Retail inflation has gained 146 basis points since its fall of 4.1% in January 2021 and grown at 5.52% on year on year basis in March. It’s interesting to note that food inflation has picked up. The Year on Year growth has gained 298 basis points to grow at 4.94% in March. Prices in three food categories – egg, fish & meat and pulses continue to grow in double digits. On the other hand, the contraction in the production of non-consumer goods, manufacturing/construction goods etc has been severe. “Production level of primary, intermediate and infrastructure goods which breached pre-COVID level has again slumped below it in February 2021,” said a note by Devendra Kumar Pant, Chief Economist, India Ratings and Research.

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