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272 Economic Survey 2021-22

Figure 8: Eight Core Index in Oct-21 as percent of February-20 and November-19

Survey calculation based on data from DPIIT

8.9 Capacity utilization (CU) is an important economic indicator to assess demand and
investment prospects of the economy. CU rates are largely able to track the pace of manufacturing
activities in the economy. The growth rate of the IIP-manufacturing index and capacity utilization
(Figure 9) provides a snapshot of the demand conditions for India’s manufacturing sector. It is
clear that the extent of CU had decreased substantially during the first quarter of 2020-21 due
to the COVID-19 pandemic as severe restrictions were imposed in the country. It was, however,
less severe during the second wave of COVID-19 (Q1:2021-22) mainly because the lockdown
was not imposed as a country wide measure, allowing states the flexibility to decide. At the
aggregate level, CU for the manufacturing sector declined to 40 percent in Q1:FY21 and then
rose to 69.4 in Q4:FY21, however it fell to 60.0 in Q1:FY22.

Figure 9: Capacity Utilization and IIP (manufacturing)

Source: Survey calculations based on data from MOSPI and RBI