Industrial output grew 3.1% in September from a year ago, compared with a 0.7% contraction in the previous month, the latest in a series of high-frequency indicators that showed an uptick of late.
But the recovery was far from being broad-based, as manufacturing rose at a modest rate of 1.8%, even though mining and electricity output grew by 4.6% and 11.6%, respectively, in September.
Similarly, while capital, primary and infrastructure goods segments grew in the range of 7.4% to 10.3% in September, aided by the government’s capex drive, consumer goods output continued to shrink and intermediate goods rose at a slower pace than the previous month.
While a contraction in consumer durable deepened in September to 4.5% from 2.5% in the previous month, that in non-durables slightly improved but still remained to the tune of 7.1%, against 9.5% in the previous month. This suggests a credible and broad-based industrial recovery is yet to take roots.
Some analysts expect the index of industrial production (IIP) to record low single-digit growth in October, citing fewer working days in the Diwali month and the damaging impact of unseasonal rains on mining activity and power supply.
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What could worry policy-makers is the tepid growth in labour-intensive and export-sensitive manufacturing sectors, such as textiles, apparels and leather and related products in recent months. A spur in festive demand in the build-up to Diwali was mainly limited to manufacturing of beverages, motor vehicles and other transport equipment, which is likely to continue in October as well, according to India Ratings principal economist Sunil Kumar Sinha.
Nevertheless, there are reasons to cheer about. The IIP in September grew a healthy 8.1% from the pre-pandemic level (the same month in 2019), with an increase in all use-based categories barring consumer non-durables. The IIP is the latest in a number of indicators, including manufacturing PMI, non-food credit, core infrastructure sector output, e-way bills and goods and services tax collection, that showed improved economic momentum in September. However, stiff challenges still persist, as the geopolitical tension and impact of aggressive rate tightening by key central banks pose downside risks to growth, both at home and abroad.
In the first half of this fiscal, the IIP grew 7%, against 23.8% (on a contracted base) a year before.
Though the demand for capital/infrastructure goods would continue to get support from the sustained government capex spending both at the union and state level, the weak recovery in other sectors could cap the overall growth of factory output in the near term, said Sinha. “Going forward, the spell of abnormal rains in October appears to have an impact on coal and electricity sectors,” he added. According to available indicators, coal production in October was up only 3.4% and the power generation grew 3.1%.
Icra chief economist Aditi Nayar said the year-on-year growth of most available high frequency indicators eased in October relative to September, owing to the “relatively early onset of the festive season in 2022 vis-à-vis 2021 and the consequent advancement of pre-festive stocking and shift in the holiday calendar”.
“We expect the overall IIP growth to ease to sub-2% in October 2022, as a higher number of holidays in October relative to (October) last year, owing to the earlier onset of the festive season and flagging external demand are likely to have constrained the performance of the manufacturing sector in the month,” she added.