Giving mixed signals on the demand in the economy and confirming that a broad-based industrial recovery is yet to take root, the index of industrial production (IIP) grew 4.3% on year in December, down from a five-month high rate of 7.1% in the previous month.
The index had grown by 1% on year in December 2021.
The sequential slowing of the pace of growth in industrial output was due to a modest expansion in the manufacturing sector, which grew 2.6% in December from a year ago even as mining at 9.8% and electricity generation at 10.4% registered robust growth rates.
Labour-intensive industries like textile, apparel, leather, computers, electronics and optical items registered negative growth rates in December.
Use-based classification of industries presented a mixed picture, with two of the three sectors registering negative growth rates. Consumer durables fell back into the negative zone (-10.4%) in December, while consumer non-durables grew by a healthy 7.2%. Primary and capital goods industries registered growth rates of 8.3% and 7.6% respectively, in the month even as intermediate goods declined by 0.3%.
“On the whole the infrastructure-related industries are showing good traction while the index is volatile for consumer goods as the main season is over and the pent-up demand syndrome has got diluted. Growth will continue to be narrowly focused rather than broad-based in the next three months of the year,” said Madan Sabnavis, chief economist, Bank of Baroda
The repo rate is now at 6.5% after a 25-basis point hike on February 8 in the monetary policy review and the full impact of the six rounds of rate hikes are expected to come with a lag.
Policymakers are, however, confident that economic activities would remain resilient despite global turmoil and inflationary pressures. The focus of the Union Budget 2023-24 on investment and capital expenditure is also expected to boost economic recovery, they feel.
Aditi Nayar, chief economist, head – research & outreach at Icra, noted that the year-on-year growth of the most available high frequency indicators improved in January 2023, relative to December 2022, partly reflecting a favourable base effect due to the third wave of Covid-19 in January 2022. She expects the overall IIP growth to rise to 5-7% in January 2023.
“Going forward, the annual growth in the IIP is likely to improve in the ongoing quarter (from 2.4% y-o-y in the third quarter of the fiscal), partly boosted by the typical year-end push in volumes to achieve targets as well as a low base of the third wave of Covid-19,” she said, while cautioning that a slowdown in external demand and the consequent decline in merchandise exports could impact the performance of the manufacturing sector.
High frequency indicators for January have so far shown a mixed picture. The S&P Global India Composite PMI Output Index eased from December’s near 11-year high of 59.4 to 57.5, but it remained above its long-run average (54.1) although gross collections of the goods and services tax hit their second highest level at `1.56 trillion last month.
Dharmakirti Joshi, chief economist, Crisil