July industrial growth at 5-month high of 5.7%

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

India's industrial output grew by 5.7 percent in July, according to data released by the Ministry of Statistics and Programme Implementation on September 12. At 5.7 percent, the latest industrial growth figure as per the Index of Industrial Production (IIP) is at a five-month high.

It is also above the consensus estimate of 5 percent.

Industrial growth had come in at 3.7 percent in June - now revised to 3.8 percent - and was 2.2 percent in July 2022.

For the first four months of 2023-24, India's industrial output is up 4.8 percent year-on-year, down from 10.0 percent in April-July 2022 when the data was boosted by a favourable base effect.

Industrial growth in July was supported by an improvement in the output of all three sectors - mining, manufacturing, and electricity. While mining output was 10.7 percent higher in July - compared to 7.6 percent in June - that of electricity jumped 8 percent, nearly twice the increase of 4.2 percent it posted the previous month. While the mining output growth was the highest in 14 months, the increase in electricity production was at a five-month high.

Output of the manufacturing sector, which accounts for more than three-fourths of the IIP, registered a growth of 4.6 percent, up from 3.1 percent in June.

The performance of the manufacturing sector has raised questions among economists. While they point at the quarterly GDP data - which shows growth in the gross value added of the sector was 4.7 percent in April-June, only slightly higher than 4.5 percent in January-March and lower than 6.1 percent in April-June 2022 - the government is keen to point at the robust high-frequency data, such as the manufacturing Purchasing Managers' Index (PMI).

India's manufacturing PMI rose to a three-month high of 58.6 in August. The figure, which is an indicator of month-on-month changes in activity levels, has now spent 26 consecutive months above the key level of 50 that separates expansion and contraction of the sector.

In terms of the use-based classification of goods, the July numbers showed more of the same.

"The growth in industrial production is uneven across the categories. Consistent growth in the capital goods and infra/construction goods production hints at heathy investment cycle in the economy. However, slowing consumer durable goods production is hinting at slowdown in personal consumption of the households," noted Vivek Rathi, director-research, Knight Frank India.

While capital goods production was 4.6 percent higher in July, up from 2 percent in June, output of infrastrcuture goods rose by double-digits for the fourth month in a row. However, consumer durables output contracted again, this time by 2.7 percent, although that of non-durables surprisingly increased by 7.4 percent after having seen a weak June where production was up a mere 0.3 percent.

According to Rajani Sinha, chief economist at CareEdge, the "sharp rebound" in consumer non-durables will have to be monitored.

"Festive season is likely to provide a fillip to consumption demand in the near term. Over a longer period of time, unfolding of the domestic demand scenario remains critical for industrial activity. The elevated food inflation and monsoon-related vagaries could pose a risk for consumption demand," Sinha added.