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IIP NUMBERS AND INDUSTRIAL ACTIVITY IN LOCKDOWN

Focus: GS-III Indian Economy

Why in news?

The Index of Industrial Production (IIP) numbers for June completes the data for first quarterly estimates of a major sector’s activity during the lockdown phase.

Details

  • The IIP has three components by economic activity: mining and quarrying, manufacturing and electricity.
  • These three sub-sectors had a share of around one-fifth of the total Gross Value Added (GVA) in 2019-20.
  • Experts suggests India’s June quarter gross domestic product (GDP) could witness a significant annual contraction due to the headwinds in the sub-sectors covered under the IIP alone.
  • The overall extent of the fall in GDP will be much greater once the losses in the services sector, which account for more than half of the GVA, are factored in.
  • The IIP numbers also suggest that the sequential recovery in June was led by pent-up demand due to the coronavirus disease lockdown, and businesses remain circumspect about a sustainable increase in demand.

The trend

  • As is expected, manufacturing has the highest share among these three sub-sectors.
  • Growth rate of IIP and these three sectors in GVA move in tandem.
  • A Purchasing Managers’ Index (PMI) value less than 50 signifies a contraction in economic activity – (for the month of July was industry 46 and services 34.2).
  • Even if one excludes public administration, defence and other services; assuming the government has not cut back on spending, it is more than 40%.
  • While the rate of contraction in IIP has been declining – it does not mean that economic activity has returned to last year’s levels.

-Source: Hindustan Times

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