India’s industrial production slowed down to a five-month low of 4.2 percent in July compared with 6.2 percent in the previous month, as manufacturing growth, which accounts for two-thirds of the index halved to a seven month low of 2.6 percent, according to data released on August 12.
"The growth in the industrial output continues to be led by the electricity and mining sectors which recorded a growth of 8.6 percent and 10.3 percent (at an eight-month high) in June 2024, respectively," said Paras Jasrai, senior analyst, India Ratings and Research.
Output growth was lower than the median forecast of 4.8 percent. The forecasts in the MC poll published on August 9 varied from 4 percent to 6 percent.
Electricity growth, as per the index of industrial production, slowed to 8.6 percent in June compared with 13.7 percent in the previous month. Mining was the only major sector to record a rise to 10.3 percent from 6.6 percent earlier.
Core industries growth, which accounts for 40 percent weight in the index of industrial production index, had eased to a 20-month low of 4 percent in June compared with 6.4 percent in the previous month.
For the quarter, however, growth was higher at 5.2 percent compared with 4.7 percent in Q1FY24. Economists believe it is likely to push industrial output higher as well.
"Within manufacturing, growth was driven by electronics (after a long hiatus) electrical machinery, metals and auto sector," said Madan Sabnavis, chief economist, Bank of Baroda.
Widespread decline
In terms of use-based classification there was a moderation across industries.
Consumer durables was the best performing sector with 8.6 percent growth, on the back of a favourable -6.8 percent base from the previous year, but was at the lowest level since December. Non-durables, on the other hand, slipped back into contraction at -1.4 percent from 2.5 percent in the previous month.
Capital goods growth was also slower at 2.4 percent from 2.9 percent in the previous month.
"The impact of general elections was visible in IIP data," said Jasrai.
Not a rosy outlook in near term
Economists expect base effects to drag growth further.
"Notwithstanding the mixed trends in the available high frequency data for July 2024, ICRA anticipates the YoY IIP growth to ease to 2.5-4.5% in that month, amid an adverse base (+6.2% in July 2023)," said Aditi Nayar, chief economist, Icra, highlighting the trend is likely to weigh down GDP growth print for Q1 FY25.
The government will release first quarter GDP data on August 30.
"There is an unfavorable base effect which will be at play in the next four months and is expected to weigh down on the industrial sector growth," Jasrai added.
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