IIP Comes in Lower at 1.4% for November 2021

When the index for industrial production (IIP) for Nov-21 came in at 1.42%, it marked the ninth consecutive month of positive IIP growth. However, there was the key Omicron worry in November For example, the Reuters consensus estimates for IIP had been pegged 3%, but actual IIP growth at 1.42% was below street estimates. There was clear loss of momentum.

After 8 months of FY22 data on IIP, the economy is still struggling to get the better of pre-COVID levels. Year on year, the cumulative IIP has grown by 17.4%. However, compared to pre-COVID levels, cumulative IIP for first 8 months is still lower by -0.56%. We are getting closer to the pre-COVID levels but yet to get the better of it.

Some good news helps in such a scenario and that good news comes in the form of upgrades of previous IIP numbers. Aug-21 IIP got a final upgrade of 94 bps to 12.97%. If you add the first revision, total upgrade is 152 bps. The first estimates for Oct-21 upgraded the IIP estimate by 81 bps to 4.01%. There is hope of upgrades to November 2021 data too.

Let us focus on FY22 to get a cumulative picture. We first break up into 3 core components of IIP. Mining growth for 8 months stood at 18.2%, manufacturing growth 18.5% and electricity growth at 10.2%. What happens when you compare the 3 components with the corresponding Apr-Nov period of 2019?

On a 2 year basis, mining sector was up 3.78% but manufacturing was lower by -1.88%. Even electricity growth has tapered to just 5.13%. Overall cumulative 8-month IIP is still lower than the 2019 period by -0.56%. The pressure has obviously come from manufacturing sector with its predominant weightage of 77.64% in IIP basket.

What clearly stands out about the November 2021 IIP data is the palpable loss of momentum. The overall IIP contraction over Nov-19 levels stands at -0.23%, as against positive 7.4% growth in Nov-19. You can blame it on Omicron fears that has clearly disrupted the growth momentum of IIP; and the impact has been substantive.

Finally, what does this mean for RBI policy on rates? Prima facie, it does look like Feb-22 policy will be an inflation-driven policy. However, it cannot ignore the loss of momentum in IIP in November altogether. Therefore, it looks quite likely that any hawkishness or even any talks of rate hike may be put off till April. By then, Fed will give its decision on rates. The weak growth impulses may allow RBI to indulge in a neutral stance in February too.