India’s factory output growth, as measured by the Index of Industrial Production (IIP) rose to a four-month high of 5.7% in February from 4.1% in January, mainly on account of the statistical effect of a low base, government data released on Friday showed. All the three sectors – manufacturing, mining and electricity – witnessed acceleration in growth during February.
Manufacturing output rose 5% on year in February, higher than the 3.6% growth observed in January, but the other two components – mining and electricity – recorded a robust y-o-y growth of 8% and 7.5% respectively. In January, mining and electricity had grown 3.6% and 4.1%, respectively.
On a month-on-month basis, however, the overall production declined 4.1% during February. Typically, the overall factory output (based on volume) declines in February as compared to January, as the former has a lesser number of days as compared to the latter.
Within the use-based category, except capital and consumer nondurables, other segments namely primary goods, intermediate goods, infrastructure goods and consumer durables witnessed healthy growth in February.
Consumer durables output grew at a robust 12.3% in February, but this was on a low base. Sequentially the output of the group declined by 0.1%.
“Consumer durables appears to be getting the benefit of the spending power of households belonging to the upper income bracket but the spending is not uniform across the months and hence the growth pattern of consumer durable segment of IIP wobbles across months,” said India Ratings and Research (Ind-Ra) in a note. Since the past three straight months, consumer durables growth has been positive.
Consumer non-durables production, on the other hand, contracted 3.8% in February. In January 2024, all use-based segments of IIP had recorded output higher than pre-Covid level after a gap of 33 months but they faltered again in February 2024 to be lower than pre-Covid level.
“The overall pattern of IIP growth indicates that the industrial recovery is still not broad based and only select industrial segments are doing well,” said Ind-Ra.
Barclays said in a note that the IIP and core sector data doesn’t show a similar trend that is observed in the PMI data.
While IIP growth accelerated in y-o-y in February, sequentially, the index declined. The core infra index, which accounts for about 40% of IIP composition, showed a similar trend. However, manufacturing PMI in both February and March showed continued expansion in new factory orders and output.
“We think the optimism reflected in PMI numbers partly reflects an expansion in firms’ margins, as input costs were subdued for most of the current fiscal. On the other hand, volume growth in the industrial sector remains uneven,” Barclays said.
