Factory output spiked to an 8-month high of 7.1% in April

Industrial production, also referred to as the factory output, gauged by the Index of Industrial Production (IIP), grew by 7.1% in April, compared to 2.2% in March.

Sequentially, the index of industrial production contracted 9.2% in April over March. In the period between Apr'21-Mar’22, industrial production grew by 11.4% compared to a contraction of 8.4% 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 6.3% in April, compared to a growth of 1.4% in March. Within the manufacturing sector, the production of wearing apparel registered the sharpest growth of 65.7%, followed by the manufacture of furniture at 57.8%. The manufacture of paper & paper products witnessed the biggest YoY decrease of 5.4% in Apr'22, followed by the manufacture of rubber & plastic products at 1.9%.

The mining output increased by 7.8% in April in comparison to 3.9% in March while Electricity production grew by 11.8% in April compared to 6.1% 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) increased by 14.7% in April, marking the fourth consecutive month of growth. Consumer durables (eg. garments, passenger vehicles) output grew by 8.5% breaking the pattern of six consecutive month of contraction. The output of consumer non-durables (eg. toiletries, medicines) grew by only 0.3% in April. Typically, this category should not see many contractions given that these products are relatively cheaper and regularly required for consumption by a majority of India's population. A nominal growth of 0.3% shows that a majority of India's population held back on their essential purchases in Apr'22. The subdued consumer demand, in turn, impacts the demand for intermediate and capital goods.

The growth in infrastructure/construction goods (7.6%), primary goods (10.1%), and intermediate goods (7.6%) provided some support to the overall industrial growth in April.

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 8.4% in April compared to 4.9% in March. 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 coal and electricity 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.