Industrial output growth hits 12-month high on low base

Some analysts expect IIP growth to ease to 10-13% in June, as the favourable base effect starts to wane.

Industrial output growth hits 12-month high on low base
The overall IIP was also up 6.3% from the pre-pandemic period (May 2019).

Industrial output growth scaled a 12-month high of 19.6% in May from a year before, compared with 6.7% in the previous month, aided by a favourable base due to the second Covid-19 wave in May 2021.

The growth suggests economic activity continued to gather some traction despite a spurt in input costs in the wake of the Russia-Ukraine conflict. However, on a seasonally-adjusted sequential basis, the index of industrial production (IIP) growth slowed to 1% month-on-month in May from 4.6% in April. This suggests a meaningful and sustained recovery is yet to take root.

The growth in the IIP exceeded core infrastructure sector growth (18.1%) for the first time in eight months in May.

The official data released on Tuesday showed manufacturing grew 20.6% in May from 5.8% in April. Both mining and electricity segments, too, put up a decent show by growing 10.9% and 23.5%, respectively — the latter mainly due to a scorching summer.

The overall IIP was also up 6.3% from the pre-pandemic period (May 2019).

Some analysts expect IIP growth to ease to 10-13% in June, as the favourable base effect starts to wane.

Importantly, capital goods and consumer durables made a smart rebound in June, having jumped by as much as 54% and 58.5%, respectively. Both the segments have recorded growth at the fastest pace since May 2021 (which, too, was on a favourable base due to the 2020 lockdown). Nevertheless, the latest growth suggests investments and urban consumption are improving.

At 0.9%, the growth in the non-durables output turned positive after a gap of three months, but the paltry rise suggests rural consumption is still bruised. However, this may improve again if the country reaps a bumper farm harvest, which is likely.

Analysts at India Ratings wrote: “The double-digit growth in the capital goods segment perhaps has been benefiting from the capex push provided by the government and the consumer durables segment is gaining from the unusual hot summer, pent up demand and K shaped recovery.”

It appears that the paltry year-on-year growth in the consumer non-durables is also a fall-out of the K-shaped recovery. “This is a disturbing trend and if persist for long will be a risk for sustainable industrial recovery,” they cautioned.

Icra chief economist Aditi Nayar said that compared with the pre-Covid level, the performance was decidedly mixed, with capital goods, consumer durables and consumer non-durables trailing, and primary goods, infrastructure goods and intermediate goods posting a rise in May 2022. She expected the IIP growth to ease to about 11-13% in June. Industrial growth is subsequently expected to moderate to single digits in Q2 FY23, as the base effect dissipates, Nayar added.

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