Industrial Production expands 1.3% in January. Demand for consumer durables and capital goods remains subdued.

Industrial production, also referred to as the factory output, gauged by the Index of Industrial Production (IIP), grew by 1.3% in January, compared to 0.7% in December.

The 1.3% YoY growth in industrial production in Jan'22 does not carry the baggage of a low base effect and reflects the true picture of growth. In the period between Apr'21-Jan’22, industrial production grew by 13.7% compared to a de-growth of 12% in the corresponding period a year ago.

Sectoral Production

The IIP is the weighted average of 3 indexes - manufacturing, mining, and electricity. The relative weight of these in the Index is manufacturing (77.6%), mining (14.4%), and electricity (8%). The sector composition is one of the ways to classify the products in IIP, under which a basket of products is grouped under manufacturing, mining, and electricity.

The manufacturing sector, which comprises 77.6% of the index of industrial production, registered a growth of 1.1% in January, compared to a growth of just 0.2% in December. Within the manufacturing sector, the production of motor vehicles registered a fall of 7.6%, followed by the production of other transport equipment at 14.4%. The production of wearing apparel witnessed the biggest YoY increase of 21.8%, followed by computers and electronic products at 20%.

The mining output increased by 2.8% in January in comparison to 2.6% in December while Electricity production grew by 0.9% in January compared to 2.8% a month earlier.

Use-Based Production

The IIP also constitutes 6 use-based weighted-average indexes. The relative weight of these in the overall IIP are - Primary Goods (34%), Capital Goods (8.2%), Intermediate Goods (17.2%), Infrastructure/Construction Goods (12.3%), Consumer Durables (12.8%), and Consumer Non-Durables (15.3%). This is another way to classify the products in IIP under which products are grouped by the use to which they are put to.

The output of capital goods (eg. machinery) declined by 1.4% in January, marking the fourth consecutive month of decline. The steady decline in the output of capital goods, a significant barometer of investment, could impact down-the-line factory production in the coming months. Consumer durables (eg. garments, passenger vehicles) output declined by 3.3% marking the ninth consecutive month of declining growth. The output of consumer non-durables (eg. toiletries, medicines) increased by 2.1% in comparison to a negative growth of 0.1% in December. The growth in primary goods (1.6%), intermediate goods (0.9%) and infrastructure/construction goods (5.4%) provided some support to the overall industrial growth in January. 

The factory output of the eight core sectors (Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement, and Electricity), also known as the infrastructure output, grew 3.7% in January compared to 4.1% in December. The eight core industries consist of 40.27% of the weight of items that are included in the Index of Industrial Output (IIP). The growth in the factory output of the 8 core sectors was led mainly by the cement and natural gas sectors.

Reference Reading

What is the Index of Industrial Production (IIP)?

The Index of Industrial Production (IIP) reflects the growth of core industrial sectors in an economy. The IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period. It essentially takes a basket of industrial products and creates an index by assigning different weights to different products. Growth in industrial production is determined by comparing the monthly values of this index with the index value in the same month last year. This rate of growth (positive or negative) in IIP signals India’s industrial health or the lack of it.

The IIP is the weighted average of 3 indexes - Mining (14.4%), Manufacturing (77.6%), and Electricity (8%). In addition, the IIP also constitutes 6 use-based weighted-average indexes - Primary Goods (34%), Capital Goods (8.2%), Intermediate Goods (17.2%), Infrastructure/Construction Goods (12.3%), Consumer Durables (12.8%), Consumer Non-Durables (15.3%). Eight core Industries (Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity) comprise 40.27% of the weight of the items included in IIP which is tracked through the Index of Infrastructure Output. Some sectors may outperform others due to a variety of reasons, such as growth prospects, position in the business cycle, government policy, international factors, etc.

IIP is a short-term measure of industrial growth till the outcomes from the Annual Survey of Industries (ASI) and National Accounts Statistics such as GDP are available. It is compiled and published monthly by the National Statistical Office, MoSPI six weeks after the reference month ends.

The Base Year for the IIP is 2011-12 with a value of 100. So, if the index for mining in Mar'20 is say 132.7, it implies that compared to the 2011-12 index value of 100, mining has performed at a growth rate of 32.7% in 8 years.