IIP growth inches up to 5.2% in January

The index had risen by 4.7% (revised from 4.3%) in December 2022 and 2% in January 2022.

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In April-June (Q1FY24), an unfavourable base would impact the index movement.

The index of industrial production (IIIP) grew 5.2% on year in January, thanks to creditable performance by the mining, electricity and capital goods sectors and a favourable base effect that is yet to wane. However, consumer durables output contracted in January even on a shrunken base.

The index had risen by 4.7% (revised from 4.3%) in December 2022 and 2% in January 2022.

While January growth was the second highest in any month since July 2022, analysts anticipate the IIP to reflect the slowing pace of the economy in the coming months; GDP growth in Q4FY23 is widely expected to be below 5%, with some seeing the expansion hovering around 4%. Not just an export slowdown, but a moderation in domestic demand is also expected to dampen production.

In April-June (Q1FY24), an unfavourable base would impact the index movement.

The latest IIP data, however, reflect a modest pick-up in investments with capital goods and infrastructure/ construction goods posting strong growth rates of 11% and 8.1 respectively, although in the former case a favourable base (1.8%) helped.

The cumulative growth in the index was 5.4% between April-January FY23.

Rahul Bajoria, MD & head of EM Asia (ex-China) economics, Barclays, noted that on a month-on-month basis, the pace of increase slowed considerably to 0.8% in January from 5.7% in December and 6.1% in November.

Data released by the National Statistical Office on Friday revealed that there was fairly broad-based growth in the IIP in January with all three sectors of mining, manufacturing and electricity generation registering faster growth than a year ago when the third wave of the pandemic was under way.

Mining grew by 8.8% in January on a year-on-year basis, which was slightly lower than the about 10% growth it clocked in the previous month. However, electricity generation grew by a robust 12.7% in January and manufacturing by a slower 3.7% in the month.

With the global slowdown impacting export demand, sectors including textiles (-11%), apparels ( -22.3%) and leather (-0.4%) saw contraction in growth in January. In all, 10 of the sectors saw negative growth in the month, including tobacco (-14.5%) computer, electronics and optical products (-29.6%), and wood and products of wood and cork (-12.6%).

Among the sectors with large weights in the index, base metals (5.9%), coke and refined petroleum (5.1%) food products (8.3%) held up.

Madan Sabnavis, chief economist, Bank of Baroda, said growth was pushed down mainly by textiles and electronics. “Textiles has been affected by rising costs as well as declining exports due to the global slowdown. The computers/ electronics group witnessed a fall of 29.6% this month. This sector was to benefit the most from the PLI scheme. Given that growth has declined by 3% for the 10-month period, it does look like the gains have not yet accrued,” he said.

Amongst use based classification of goods, all segments barring consumer durables registered positive growth in January. Primary goods grew by 9.6% and infrastructure and construction goods by 8.1%, indicating the continued focus on capital expenditure by the government. Intermediate goods however, grew by 0.1%. While consumer non-durables grew by 6.2%, consumer durables remained in the negative zone and registered a degrowth of 7.5% in January.

Higher inflation and subsequent rate hikes are seen to have muted private demand, including for consumer durables. With retail inflation in February also likely to remain high, analysts have not ruled out another rate hike by the Reserve Bank of India in the April policy review. The repo rate is now at 6.5% after a 25-basis point hike on February 8.

Aditi Nayar, chief economist and head – research & outreach, Icra, said a portion of the continuing albeit narrower contraction in consumer durables stems from weak exports. The agency expects the IIP to record a dip in the y-o-y growth to 3-5% in February.

Sabnavis said on a cumulative basis, the fiscal would end with IIP growth in the region of 6%.

Bajoria noted that on a three-month rolling basis, industrial production seems to be picking up pace, but remains less robust than other indicators, especially in the services sector. “This outperformance is also visible in PMI indicators, and most service sector indicators continue to hit new highs, especially in level terms,” he said. The second advance estimates of national income retained the growth projection at 7% for 2022-23 with manufacturing growth seen at just 0.6%. Many economists expect downside risks to the growth forecast and expect growth to be in the region of 6% in the 2023-24.

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First published on: 11-03-2023 at 06:00 IST