Industrial growth hits 14-month high of 10.3% in August

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

India's industrial output grew by 10.3 percent in August, according to data released by the Ministry of Statistics and Programme Implementation on October 12. At 10.3 percent, the latest industrial growth figure as per the Index of Industrial Production (IIP) is the highest in 14 months.

It is also well above the consensus estimate of 9.1 percent.

Industrial growth had come in at 5.7 percent in July - now revised to 6.0 percent - and was -0.7 percent in August 2022.

For the first five months of 2023-24, India's industrial output is up 6.1 percent year-on-year, down from 7.7 percent in April-August 2022 when the data was boosted by a favourable base effect.

Industrial growth in August was supported by an improvement in the output of all three sectors - mining, manufacturing, and electricity. While mining output growth rose to 12.3 percent from 10.7 percent in July, that of manufacturing and electricity nearly doubled.

In August, production of electricity and manufacturing rose by 15.3 percent and 9.3 percent, respectively, compared to the same month last year. In July, their output had increased by 8.0 percent and 5.0 percent.

"The mining sector has possibly benefitted from the rainfall deficiency in August, leading to a double-digit output growth of 12.3 percent during the month. Typically, the electricity sector witnesses a decline in generation during the monsoon months but given the irregular rainfall, the power demand has been particularly high from the residential and the agricultural segment in August," Suman Chowdhury, Chief Economist at Acuité Ratings & Research, said.

In terms of the use-based classification of goods, production growth in August was higher for all six categories compared to July:

>> Primary goods: 12.4 percent versus 7.6 percent in July

>> Capital goods: 12.6 percent versus 4.5 percent in July

>> Intermediate goods: 6.5 percent versus 2.4 percent in July

>> Infrastructure goods: 14.9 percent versus 12.4 percent in July

>> Consumer durable goods: 5.7 percent versus -2.6 percent in July

>> Consumer non-durable goods: 9.0 percent versus 7.9 percent in July

"The rise was broad-based across manufacturing sectors," noted Dipti Deshpande, Principal Economist at CRISIL.

"Resilient domestic demand reflected in rising IIP growth of consumer durables and non-durables. Export demand revived in August and supported IIP growth for petroleum products, machinery and equipment, textiles, and pharmaceuticals. Infrastructure and construction goods continued to record the highest growth, driven by strong spending by the government," Deshpande added.

However, going forward, Deshpande expects industrial activity to "lose steam" in the coming months, although it will remain robust. Aditi Nayar, ICRA's Chief Economist, added that there might be "an optical boost" for some categories of goods in September and November due to a shift in the festival calendar "with a concomitant moderation in the prints for October".