India’s January IIP growth at 3.8% versus 4.2% in December

The Index of Industrial Production, or IIP, is a key indicator of India’s monthly activity levels.

Growth in India's industrial output decelerated to 3.8 percent in January, according to data released by the Ministry of Statistics and Programme Implementation on March 12.

At 3.8 percent, the latest industrial growth figure as per the Index of Industrial Production (IIP) is unchanged from the December 2023 figure of 3.8 percent. That number was on March 12 revised higher to 4.2 percent by the statistics ministry. This was to be expected after the commerce ministry revised upwards core sector growth for December to 4.9 percent from 3.8 percent.

The eight core industries – coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity – make up around 40 percent of the IIP. As such, it is seen as a lead indicator of industrial growth data.

Meanwhile, for April 2023-January 2024, industrial growth stood at 5.9 percent as against 5.5 percent in April 2022-January 2023.

In January 2023, India's industrial output had grown by 5.8 percent.

The latest IIP growth print is below expectations. A Moneycontrol survey had shown economists expected industrial production to increase by 4.2 percent year-on-year in January.

The decline in industrial growth in January was down to the manufacturing sector, whose output grew by 3.2 percent as opposed to a 4.5 percent increase in the last month of 2023. The slowdown in manufacturing production growth more than cancelled out the greater rate of increase in the other two key sectors - mining and electricity.

In January, mining and electricity production rose by 5.9 percent and 5.6 percent, respectively, from 5.2 percent and 1.2 percent in December.

In terms of the use-based classification of goods, production growth in January was as follows:

>> Primary goods: 2.9 percent versus 4.8 percent in December

>> Capital goods: 4.1 percent versus 3.6 percent in December

>> Intermediate goods: 4.8 percent versus 3.9 percent in December

>> Infrastructure goods: 4.6 percent versus 5.1 percent in December

>> Consumer durable goods: 10.9 percent versus 5.3 percent in December

>> Consumer non-durable goods: -0.3 percent versus 2.4 percent in December

According to Radhika Rao, senior economist at DBS Bank, the supply-side segments of IIP - such as infrastructure, capital, and intermediate goods - are "faring well, reflecting the broad investments-driven push".

However, when it comes to the demand-driven segments, especially consumer non-durable goods - whose output contracted by 0.3 percent in January - Rao said their performance "signals the unfavourable terms of trade impulse on the consumption front".

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"…the contraction in consumer non-durables remains reflective of the weakness in consumption," said Rajani Sinha, chief economist at CareEdge.

"It is concerning that consumer non-durables performance has remained feeble in the last few months. With CPI inflation moderating, it would be interesting to see if that gets reflected in improved consumption demand in the coming quarters," Sinha added.