From IIP to inflation: Here's a status check on the Indian economy

The National Statistical Office came out with a fresh set of macroeconomic data on Tuesday. The industrial production climbed to a 12-month high of around 20 per cent in May year-on-year. But, when compared to the same month in 2019 -- before the coronavirus pandemic hit the country -- the rise was just 1.7 per cent. The index of industrial production, or IIP, decelerated in May from 6.5 per cent in April over the corresponding month of 2019.

The flat growth might prompt the Reserve Bank of India’s monetary policy committee to not go in for an aggressive rate hike in August in a bid to cool down retail price inflation, which came in at 7.01 per cent in June and above the RBI’s mandate of six per cent for the sixth month straight. And, experts expect inflation to remain elevated through the rest of the year with only a gradual descent.

Manufacturing output, which comprises more than three-fourth of the index, fell by almost one per cent in May 2022 compared to May 2019. However, the low-base effect was so pronounced that manufacturing showed a substantial 21 per cent growth in May year-on-year this time. That is why the government press release on IIP had a note of caution, which said that the growth rates over corresponding period of previous year were to be interpreted considering the unusual circumstances on account of the Covid-19 pandemic since March 2020. Manufacturing might take time to recover since capital goods declined seven per cent in April and eight per cent in May compared to the year before Covid-19.

A significant pick-up in IIP growth would normally indicate ongoing economic recovery. However, a second look keeping the pre-Covid situation in mind shows that we are yet to make up for the ground lost during the pandemic years.

Sluggish demand is best demonstrated by consumer non-durables whose production fell by 8.7 per cent in May 2022 compared to the same month three years ago. Mass consumption remains under stress. The FMCG sector continues to be burdened with weak volumes. This is because inflation has pushed up the prices of goods, thereby afflicting consumption.

Write "May 2019" on one side of the screen. Show a downwards arrow. The arrow should point to "May 2022". Alongside the arrow write "8.7% fall".

The situation with consumer non-durables, or FMCG, indicates that India continues to see a K-shaped recovery, where the affluent and those at the bottom of the pyramid recover at vastly different rates.  

HUL, Dabur India, Asian Paints, and Parle Products have all seen consumers buying cheaper and smaller packs. Meanwhile, according to Bloomberg, HUL saw its premium portfolio grow at twice the pace as the rest of its portfolio in 2021-22. Marico's premium personal care range also grew in high double digits in FY22.

A NielsenIQ report has also found that the FMCG industry saw a decline in volume in the January-March period. In fact, rural India witnessed a 5.3 per cent fall in volume, the highest consumption slowdown in the last three quarters. The report said that a decline in consumption was echoed across all zones and the town classes, but was more prominent in rural markets.

[Byte of Madan Sabnavis]

The economy is yet to fully recover from the scars of the pandemic and we have just about made up for the losses suffered on its account. And there’s a question mark on growth going forward, as much will depend on our ability to tame inflation and overcome geopolitical challenges.