Industrial output contracted 1.6 per cent in January, a month after it entered the positive zone, as manufacturing and mining activities slumped, according to the data released by the ministry of statistics and programme implementation (MoSPI).

The country’s industrial output contracted 12.2 per cent in the April-January period of the current fiscal, the data showed. Industrial production was hit hard by the nationwide lockdown imposed to spread the curb of infections.

IIP declined for five consecutive months from April to August in 2021-22, before returning to positive territory in September and October.

While IIP rose 4.5 per cent in October 2020 (final revised figure), it grew 1.6 per cent in December (first revised). Industrial output had contracted 2.1 per cent in November 2020. In January 2020, it grew 2.2 per cent, the ministry said.

Fuel demand drops

India’s fuel consumption fell for the second month in a row in February to its lowest since September as record-high prices hindered demand recovery.

Petroleum product consumption fell 4.9 per cent to 17.21 million tonnes in February as demand for both petrol and diesel fell.

Diesel, the most used fuel in the country, fell 8.5 per cent to 6.55 million tonnes, while petrol consumption was down 6.5 per cent to 2.4 million tonnes.

Aditi Nayar, principal economist of Icra, said: “After the rapid recovery seen till October 2020, the trend in the IIP has turned volatile in the last three months, suggesting that the economy has entered into a consolidation phase with an underlying momentum that is relatively subdued.”

Madan Sabnavis, chief economist of Care Ratings, said: “Going ahead, we do expect growth to be negative in February but it will turn positive in March as growth last year was down 18 per cent. Hence there will be a statistical push in March.”

In February 2021, deterioration in the performance of merchandise exports, the output of Coal India Limited and electricity generation has been offset by a sharp improvement in the 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.”

Madan Sabnavis, chief economist, Care Ratings said “going ahead we do expect growth to be negative in Feb but would turn positive in March as growth last year was down by 18%. Hence there will be a statistical push in March.”

"The data trend of past few months therefore reinforces the view that the uptick witnessed in the month of September and October was more due to a combination of festive and pent demand and we are still far from witnessing a sustained recovery. This also means government and RBI will have to continue to support the ongoing recovery least it fizzles out," Sunil Kumar Sinha, Principal Economist, India Ratings and Research said.

The output of the manufacturing sector -- which constitutes 77.6 per cent of the Index of Industrial Production (IIP) -- shrank by 2 per cent in January, as against a growth of 1.8 per cent during the same month last fiscal, data showed.

The worst performance was witnessed by the capital goods sector, which recorded a contraction of 9.6 per cent during the month under review, compared to a 4.4 per cent decline a year ago.

M Govinda Rao, Chief Economic Adviser, Brickwork Ratings, said the contraction in IIP numbers for January comes as a bit of surprise after turning positive in December. "The manufacturing sector continues to contract at 2 per cent shows that we still have some distance to cover before the economy recovers," he said.

A contraction of 3.7 per cent was registered in the mining sector in January, against a positive growth of 4.4 per cent in the year-ago period. As per the data, there was a contraction of 0.2 per cent in the consumer durables segment and 6.8 per cent in the consumer non-durable section. These two segments were in contraction during January 2020 also.

The second advance estimates have pegged economic contraction at 8 per cent in the current fiscal. Economic growth is expected to bounce back sharply in the next fiscal on the back of resurgence in economic activity as well as low base effect.