India's July industrial output soars to 5.7%, defying expectations

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India's July industrial output soars to 5.7%, defying expectations

India's July industrial output soars to 5.7%, defying expectations

Industry News
Sep 15,23

This latest figure, based on the Index of Industrial Production (IIP), marks a five-month high and surpasses the consensus estimate of 5%.

India's July industrial output soars to 5.7%, defying expectations

According to data released by the Ministry of Statistics and Programme Implementation on September 12, India's industrial production witnessed a growth of 5.7% in July. This latest figure, based on the Index of Industrial Production (IIP), marks a five-month high and surpasses the consensus estimate of 5%.

In June, industrial growth had initially been reported at 3.7% but has now been revised to 3.8%. Comparatively, in July 2022, the industrial growth rate was a mere 2.2%.

For the first four months of the fiscal year 2023-24, India's industrial output has risen by 4.8% year-on-year, a decrease from the 10.0% recorded in April-July 2022. This reduction is attributed to the favourable base effect in the previous year's data.

July's industrial growth was supported by improvements across all three sectors: mining, manufacturing, and electricity. Mining output experienced a notable increase of 10.7% in July, up from 7.6% in June, marking the highest growth rate in 14 months. Electricity production also surged by 8%, nearly double the 4.2% increase observed the previous month, reaching a five-month high.

The manufacturing sector, accounting for over three-fourths of the IIP, exhibited a growth rate of 4.6%, up from 3.1% in June.

However, the performance of the manufacturing sector has raised questions among economists. Although quarterly GDP data indicated a growth of 4.7% in the gross value added for the sector in April-June, only slightly higher than the 4.5% in January-March and lower than the 6.1% recorded in April-June 2022, the government emphasises robust high-frequency data, including the Manufacturing Purchasing Managers' Index (PMI).

India's manufacturing PMI reached a three-month high of 58.6 in August, signalling positive month-on-month changes in activity levels for 26 consecutive months, consistently staying above the key level of 50 that distinguishes expansion from contraction in the sector.

Regarding the use-based classification of goods, the July data revealed variations in growth across categories. There was consistent growth in the production of capital goods and infra/construction goods, suggesting a healthy investment cycle. However, consumer durable goods production declined by 2.7%, while non-durables surprisingly increased by 7.4%, following a weak June with a mere 0.3% growth.

Vivek Rathi, Director of Research at Knight Frank India, noted the uneven growth, stating that capital goods and infrastructure goods indicated a healthy investment cycle, whereas declining consumer durable goods production hinted at a slowdown in household consumption.

Rajani Sinha, Chief Economist at CareEdge, emphasised the need to monitor the "sharp rebound" in consumer non-durables. Sinha also mentioned that the festive season could boost short-term consumption demand, but long-term industrial activity would depend on the unfolding domestic demand scenario. Elevated food inflation and monsoon-related uncertainties could pose risks to consumption demand over time.

Source: Moneycontrol