Apr-22 IIP bounces to 7.14% on all-round improvement

After hovering around the 2% mark for 5 months between November 2021 and March 2022, the IIP number jumped to 7.14% in April 2022. April 2020 was the worst month in terms of COVID impact when the IIP index had fallen to as low as 54. Hence on a 3 year period compared to pre-COVID levels, the IIP growth would still be tepid. The bigger challenge would be to sustain this level of IIP growth in coming months.

Data Source: MOSPI

The last 13 months of IIP growth can be split into 3 phases. The first phase between April 2021 and August 2021, was double digit IIP growth but that was more due to a low base. While September and October were the adjustment period, the pressure was visible since November 2021, when IIP was hovering consistently around 2%. From that perspective, April 2022 is the first month when we have seen meaningful and tangible bounce in IIP.

Break up of sectoral growth in IIP — April 2022

Quite obviously, April 2022 being the first month of FY23, a cumulative picture will hardly add any value. Hence, we will stick to monthly picture of the IIP growth and focus on the three key components of IIP viz. mining, manufacturing and electricity. Mining sector growth for April 2022 came in at 7.81% while Electricity grew at an impressive 11.78%. The power sector growth was led by higher power demand, catered to with adequate supply of domestic and imported coal. The big positive story was 6.34% yoy growth in manufacturing which has a weight of 77.63%; which is why IIP tends to gravitate towards manufacturing.

When it comes to IIP, the monthly numbers go through two revisions; the first revised estimate after 1 month and the final revised estimate after 3 months. It gives an idea of how the current IIP could get modified. The final IIP estimate for January 2022 was upgraded by 52 bps from 1.46% to 1.98%. At the same time, the first revised estimate for March 2022 was also upgraded by 35 bps from 1.85% to 2.20%. The good news is that actual IIP numbers are being revised above the quick estimates, despite a series of headwinds like war, central bank hawkishness, spectre of inflation and supply chain bottlenecks.

Product wise view of the April 2022 IIP

IIP growth of 7.14% is surely an impressive number for April 2022. Here is a quick look at which specific products drove the IIP. First a quick look at the depressants. Some of the products that saw negative growth IIP in April 2022 included textiles at -0.3%, paper products -5.4%, pharmaceuticals -3.6% and rubber products -1.9%. Among the positive contributors were Apparel growing at 65.7%, furniture at 57.8%, printing 38%, beverages 29.7%, tobacco products 23.7% and coke & refined petroleum at 10.6%.

However, products only give part of the picture. Another important approach is a use-based break-up of IIP growth. Here some interesting trends have emerged. In terms of user groups, primary goods grew by 10.12% and they also have the highest weightage of 34.05%. Among other user groups, the capital goods saw growth of 14.68%, hinting at a possible revival in the capital investment cycle. But, the biggest takeaway was that the consumer segment saw positive growth for the first time in the last 6 months, hinting at consumption driven growth finally making a comeback.

What is the story behind the high frequency numbers?

We can break up the 7.14% April 2022 IIP growth into mining, manufacturing and electricity. But, more importantly, we also look at high frequency month-on-month growth.

Data Source: MOSPI

In the table above, we have looked at 2 different approaches to the IIP numbers. There is yoy data and there is the high frequency month-on-month data of IIP growth. The month-on-month high frequency data in the last column, captures short term IIP trends. Here is what we can decipher from the numbers.

There is not much of debate on the yoy numbers. IIP has grown decisively over April 2021 across mining, manufacturing and electricity. Of course, if you adjust for the base volatility in the last two years, the actual growth may not be too impressive, but we will leave that aside for now. The good news is that despite IIP index doubling in April 2021, the April 2022 IIP has still shown impressive positive growth of 7.14%. That is the key takeaway.

However, there is a lot of pressure on high frequency data. If you look at MOM IIP numbers, only the power sector has maintained the short term momentum, while mining and manufacturing are feeling the pressure of global cues. The MOM growth picture shows mining (-19.67%), manufacturing (-8.81%) but electricity (+1.83%). Overall MOM IIP growth at -9.21% is in stark contrast to the positive MOM growth manifested in March 2022. The combination of a high base and short-term headwinds played spoilsport.

With the IIP data impact the RBI monetary stance

The RBI has already undertaken 2 rounds of repo rate hikes in the last 2 months. The hike was 40 bps in May 2022 and 50 bps in June 2022. One thing is clear that the RBI is going to attack inflation above all else. For now, that appears to be the game plan. The RBI has underlined in its policy statement that growth may be fundamentally salutary, but inflation is grossly unjust. For now, the first focus of the RBI will be to reining inflation, which has touched 7.79% for April 2022. The target is the median 4%; with 2% leeway both ways.

In the last few months, two things have happened. Most of the global central banks like the Federal Reserve, Bank of England, Reserve Bank of Australia and the RBI have taken up inflation control as their primary focus. World Bank has downsized growth and that is a risk global economies are preparing for. That will surely impact IIP in the coming days. For now, the days of government accommodation to boost growth are well and truly over.