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Economic Rebound: Understanding high impact Sectors in Manufacturing

As we know, IIP is a high frequency indicator when compared to quarterly GDP numbers. In this article, IIP information is used to analyze growth in various categories of manufacturing since 2012-13 to August 2020.

In the process we also try to understand manufacturing sectors, where government’s judicious interventions could help economy to rebound quickly. This work is inline with our efforts to provide quick and regular analysis/update on manufacturing sector in the current indeterminate situation.

Highlights 

  1. Growth in GVA-Mfg. is correlated with that of IIP-Mfg. Regression    analysis suggests that growth in GVA-Mfg. in Q1 2020-21 is at -38.8%, which is very close to the announced growth of -39.3%.
  2. In 2019-20 i.e. during the period Apr-19 to Mar-20, growth in 17 out of 23 sectoral indices was negative.
  3. If we exclude Mar-20 and look at the growth during the period Apr-19 to Feb-20 over the same period of previous year, we find that 13 out of 23 sectoral indices were in red.
  4. It indicates that though lockdown announced in the last week of Mar-20 had some negative impact on 2019-20 growth, economy was not in good shape even in the period prior to Mar-20.
  5. Growth in ‘Primary Goods’, which has ~34% weight in IIP started slowing down after 2015-16. Growth in ‘Capital Goods’ (~8.2% weight) turned negative in 2019-20.
  6. Though growth in ‘Intermediate Goods’ (~17.2% weight) picked up in 2019-20, it got severely impacted in Apr-Aug 2020-21. Growth in ‘Construction Goods’ (~12.3%) turned negative in 2019-20 itself.
  7. Growth in consumer Durables (~12.8% weight) and Non-Durables (~15.3% weight) turned negative in 2019-20.
  8. 7 out of 23 sectors in manufacturing have more than ~67% share in IIP-Mfg. To ensure quick revival of economy through manufacturing, it would be worth pushing for strong policy interventions in these sectors.
  9. 3 sectors out 7 high impact sectors – ‘Basic Metals’, ‘Coke & Refined Petroleum Products’, and ‘Chemicals & Chemical Products’; deserve special attention. Together these 3 have ~41.8% share in IIP-Mfg.
  10. Few sectors have very high weight in IIP-Mfg., that necessitates disproportionately large growth oriented policy interventions in the sectors, which currently have low weight in IIP-Mfg., but have very high employment generation potential viz. Textiles, Wearing Apparel, etc.

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4 Comments

  1. To help economy revive quickly, focus could be given on sectors with high weight. Such top 3 sectors are –
    1. Basic Metals,
    2. Coke & Refined Petroleum Products, and
    3. Chemicals & Chemical Products

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  2. To sustain any kind of economic growth in medium to long run, it may be necessary to put disproportionately large growth oriented efforts through policy intervention in the sectors, which are low on weight but have very high employment generation potential viz. Textiles, Wearing Apparel, etc.

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  3. Today’s announcement of extending the benefits of ‘Production Linked Incentives’ (PLI) in 10 sectors – Advance Chemistry Cell Battery, Electronic/Technology Products, Automobiles & Auto Components, Pharmaceuticals Drugs, Telecom & Networking Products, Textile Products, Food Products, High Efficiency Solar PV Modules, White Goods, and Specialty Steel; is a highly commendable step forward.

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