India’s industrial output rose to 4.8 percent in July, compared with a 4.7 percent growth in the previous month, as manufacturing activity picked up post elections with investments gaining traction again, according to data released on September 12.
The forecast was in line with a Moneycontrol poll median of 4.8 percent. The economists in the MC poll had forecasted the index of industrial production growth to range between 3.3 and 5.8 percent.
"Despite a high base effect, the industrial output growth in July 2024 stood at 4.8 percent yoy marginally up from 4.7 percent yoy in the previous month...The growth in the manufacturing sector, the largest component of IIP, improved to 4.6 percent yoy in July 2024 from a seven-month low of 3.2 percent yoy in the past month," said Paras Jasrai, senior analyst, India Ratings and Research. d
However, the other two large sectors which comprise the index, electricity and mining, witnessed a deceleration with growth softening compared with the previous month.
Mining slowed down to five-month low of 3.7 percent in July compared with 10.3 percent in the previous month, while electricity growth softened to four-month low of 7.9 percent from 8.6 percent in June.
Rain to dent recovery
Economists indicate that there may be more downside to the two industries in August as rain is expected to subdue industrial output.
"ICRA anticipates the YoY growth in the IIP to ease to sub-3.0% in August 2024, amid the contraction in electricity and mining output owing to excess rains, as well as an adverse base (+10.9% in Aug 2023 vs. 6.2% in Jul 2023)," said Aditi Nayar, chief economist, Icra.
Rainfall remained 7 percent above average at the end of August with nearly three-fourths of the country receiving normal or above normal rainfall.
"The electricity demand and coal production declined 6.5 percent and 7.5 percent respectively in August 2024, indicative of slowdown in primary goods. Other high frequency indicators such as steel production and petroleum consumption also point to a decline in industrial growth in August 2024. Ind-Ra expects the IIP growth to be lower than 3 percent in August 2024," Jasrai noted.
Mixed performance with a hint of hope
Analysis of use-based classification indicates that performance was mixed across industries, with only two of the six sectors recording a faster rate of growth than the rest.
Capital goods and infrastructure industries grew 12 percent and 6.8 percent, respectively, compared with 3.8 percent and 3 percent growth in the previous month.
Data released by the government on August 30 indicated a 107 percent jump in capex spending in July compared with the previous year.
Consumer durables, a proxy for urban demand, continued to grow at 8.2 percent in July compared with 8.7 percent in the previous month, but non-durables, a rural demand proxy, contracted further by 4.4 percent from 1.5 percent contraction witnessed in June.
Experts indicate that this still suggests rural distress.
However, there was some hope of revival with half of the manufacturing industries performing better.
"Favourably, at the 2-digit level, 12 out of 23 industries witnessed a higher growth than the overall industrial output growth in July 2024 (highest since November 2022) indicative of some broad-basing of growth in the manufacturing sector," Jasrai said.
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