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India June factory output contracts 16.6%

2 min read
Indian factory

India’s factory output contracted for the fourth straight month in June, though at a slower pace than in May, signalling an uneven return to normal manufacturing activity since the lifting of the nationwide lockdown on 1 June.

Data released by the National Statistical Office on Tuesday showed the index of industrial production (IIP) contracted 16.6% in June compared with a 34% contraction in May.

After a bounce back in June, high frequency macro indicators showed a deceleration in July as pandemic spread rapidly in eastern and southern India, forcing local authorities to put fresh mobility restrictions, thus disrupting business activities.

India’s manufacturing output in July contracted at a faster pace than in June, signalling the impact of regional lockdowns on business activity. Data released by the data analytics firm IHS Markit showed purchasing managers’ index (PMI) for manufacturing declined slightly in July to 46 from 47.2 in June. A figure of above 50 indicates expansion, while a sub-50 print signals contraction.

Goldman Sachs expected the June quarter to be the worst hit, with GDP shrinking 45% as business activity came to a standstill for at least two months due to stringent lockdown .

ICRA Ltd earlier this month revised its GDP projection for India in FY21 to contraction of 9.5% from 5% estimated earlier citing unabated rise in covid-19 infections in the unlock phase and persisting labour supply mismatches affecting supply chains and consumption patterns. Reserve Bank of India’s Survey of Professional Forecasters on Macroeconomic Indicators released on Thursday showed GDP may contract 5.8% in FY21 before bouncing back to grow at 7.4% in FY22.

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