IIP may well continue to contract in February: ICRA

After a rapid recovery seen till October 2020, the trend in index of industrial production (IIP) has turned volatile in the last three months may well continue to contract, suggesting that the economy has entered into a consolidation phase with an underlying momentum that is relatively subdued, ICRA said on Monday.

The IIP recorded a contraction of 1.6 per cent in January in contrast to the revised growth of 1.6 per cent in December 2020. "While we had expected the IIP to display a deterioration, its performance in January 2021 was weaker than our expectation of a mild growth," it said.

The worsening in performance of IIP in January relative to December 2020 was led by manufacturing which recorded a contraction of 2 per cent in January in contrast to the growth of 2.1 per cent in December 2020.

However, the pace of contraction in mining output narrowed mildly to 3.7 per cent in January from 4.2 per cent in December 2020. Moreover, the pace of growth of electricity generation rose to 5.5 per cent from 5.1 per cent respectively.

ICRA said the sequential deterioration was broad-based across the use-based categories except for primary goods.

Moreover, three of the six use-based categories (capital goods, consumer durables and consumer non-durables) displayed a contraction in January while primary goods, infrastructure and construction goods, and intermediate goods recorded a sub-1 per cent growth in that month.

However, provisional data released by the Ministry of Commerce and Industry indicates that the pace of YoY expansion of non-oil merchandise exports eased sharply to 3.5 per cent in February from 11.5 per cent in January 2021.

In February, a deterioration in performance of merchandise exports, output of Coal India and electricity generation has been offset by a sharp improvement in pace of expansion of auto output, albeit on a very low base.

"Based on the available trends, we expect the IIP may well continue to contract in February 2021," said ICRA.

( With inputs from ANI )