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Manufacturing GVA grows as IIP shrinks in Q2; companies’ high profit likely helped more than product


Date: 01-12-2020
Subject: Manufacturing GVA grows as IIP shrinks in Q2; companies’ high profit likely helped more than product
Stellar corporate profits, on the back of a massive purge in costs, push manufacturing GVA in Q2.

The quick rebound in manufacturing GVA growth in the current fiscal’s second quarter has surprised the market, as in the same duration, the growth of industrial production significantly plunged. The manufacturing sector recovered from a 39.3 per cent contraction in Q1 to a 0.6 per cent growth in Q2, while the manufacturing IIP still fell by 6.8 per cent in Q2, according to the Ministry of Statistics and Programme Implementation (MOSPI). The jump in manufacturing GVA against falling industrial production was unusual because both are highly correlated. One possible reason for this could be stellar corporate GVA numbers in Q2, on the back of a massive purge in costs, said a report by SBI Research.

The Centre for Monitoring Indian Economy (CMIE) has also attributed the surprising recovery of the manufacturing growth to the extra-ordinary profit performance by listed manufacturing companies amid the Covid-19 pandemic. These companies reported a 13.7 per cent growth in their operating profit without any significant cut in the wage bill. Consequently, their GVA in real terms grew by 6.9 per cent in the September 2020 quarter, according to CMIE. Smaller companies, with a turnover of up to Rs 500 crore, were more aggressive in cutting cost, displaying a reduction in employee cost by 10-12 per cent.

However, this could turn into a potential headwind in future, in terms of a drag on consumption, SBI Ecowrap report added. The evidence of inventory build-up is also believed to have the potential to drag the manufacturing growth in future.

Though various other sectors, including construction, saw signs of recovery in Q2, only electricity, gas, water supply, and other utility services; and agriculture grew in the quarter, apart from manufacturing. On the other hand, the conditions of financial, real estate, and professional services; and public administration, defence, and other services, further deteriorated in the second quarter.

Source:-financialexpress.com

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