New Delhi: The weakness in India’s factory output reveals the fragile economic recovery as Asia’s third largest economy is coming out of the adverse economic impact of the restrictions imposed by state governments to contain a third wave of Covid-19 global pandemic in the country which was caused by the highly contagious Omicron variant of SarS-CoV-2 virus.
The third Covid wave which hit India in December last year resulted in the closure of schools, colleges, and businesses with the imposition of night curfews in several states that slowed down the movement of goods.
According to the latest official data, India’s factory output, measured as Index of Industrial Production (IIP), recorded a growth of just 1.3% in January this year in comparison with the growth recorded in January 2021.
Omicron impacted the fragile recovery
For economists, it remains a cause of concern as they expected a loss in the growth momentum due to the outbreak of the Omicron variant which was first discovered in South Africa in November last year and was declared a variant of concern by the World Health Organisation (WHO) within days of its discovery.
Economists like Sunil Sinha of India Ratings and Research point out that the weakness in production was expected but it did reveal the inability of the industrial sector to recover on a sustained basis.
“It points towards deeper problems like weakness in demand and/or supply-side issues,” noted the economist who closely tracks public finances and macroeconomic indicators.
The marginal growth in factory production despite a low base was disappointing but on the positive side, it was still above the pre-Covid levels. For example, the output in three broad-based segments – mining, manufacturing, and electricity in January this year was still higher than the production in February 2020 when the Covid-19 had not hit the country.
Negative growth in consumption, investment
A careful look at the use-based classification level of factory output does not inspire confidence about the economic recovery.
For example, except infrastructure and construction goods, that registered a growth of over 5% in January, namely on the back of increased capital expenditure by the Union government, other sectors such as primary, capital, intermediate, consumer durables and consumer non-durables segments were either in negative zone or recorded only marginal growths.
Moreover, January was the fourth straight month when consumer durables, which includes television, fridge, washing machine, and other such white goods, and capital goods were in the negative zone.
It shows that neither the consumption demand nor the investment demand picked up in January, a worrying sign for Indian policy makers as the high commodity and energy prices caused by the Russia-Ukraine war threatens the growth of fragile economic recovery worldwide.
