The index of industrial production (IIP) exceeded the pre-pandemic level (same month in 2019) by 6.7% in June, way above 1.7% in the previous month, mirroring improving demand conditions.
This suggests that despite a slowdown in IIP growth in June to 12.3% (year-on-year) from a 12-month high of 19.6% in May, driven by the normalisaiton of a conducive base effect, industrial recovery hasn’t lost pace.
Crisil chief economist DK Joshi said: “Manufacturing output showed healthy growth in June and supported overall IIP activity. This reflects improving demand conditions and easing of supply-side challenges.”
Manufacturing activities have already scaled an eight-month peak in July, according to the PMI data, as new order intakes rose substantially. Of course, a waning base effect, among other factors, could still weigh down the IIP growth to a single digit for July.
Aditi Nayar, chief economist at Icra, said: “Given the moderation in the year-on-year performance recorded by most high frequency indicators in July 2022, such as electricity generation, non-oil exports etc., we expect the IIP growth to ease to high single digits in that month.”
Economists at India Ratings said, “The healthy growth in capital and infrastructure goods is encouraging, signalling revival in investment activity on the back of capex push by the union government (Government capex in 1QFY23 grew 57.01% y-o-y).” The consumer non-durables sector is expected to witness a moderate recovery going forward, depending on the progress of monsoon, they said.
“The rebound in this segment is important for a durable and sustained industrial recovery which so far has been witnessing a K-shaped recovery (tepid growth in consumer non-durables and high growth in consumer durables segment),” they added. The economists expected the IIP to clock a year-on-year expansion of 7%-9% in July. Importantly, capital goods and consumer durables maintained decent growth in June, having jumped by as much as 26.1% and 23.8%, respectively, despite a sequential slowdown due to the base effect. However, at just 2.9%, the growth in the non-durables suggests rural consumption is still bruised.