India’s factory output growth, as measured by the Index of Industrial Production (IIP), fell to 4.9% year-on-year (y-o-y) in March from 5.6% y-o-y in February, despite a favourable base effect, data released by the statistics ministry showed on Friday. In March 2023, the growth was just 1.9% y-o-y. During March, manufacturing grew at a five-month high of 5.2% albeit on a low base.
Electricity, too, grew at a five-month high of 8.6%, while mining grew at just 1.2%, at a five-month low. Within manufacturing, output of eight of the 23 sub-sectors contracted year-on-year, which included food products, electronic goods, and petroleum products. “The negative growth in electronic products is a concern because there has been a PLI push here,” said Madan Sabnavis, chief economist, Bank of Baroda.
For the whole fiscal, within the use-based category, the upbeat performance in the infrastructure/ construction goods segment “remained supportive of the growth in industrial activity and we expect this momentum to continue going forward” said Rajani Sinha, chief economist, CareEdge Ratings . In FY24, IIP growth averaged 5.8%, higher than 5.2% in FY23. This was mainly due to a 5.5% growth in manufacturing (4.7% in FY23), as the sector accounts for 78% of the index.
Mining growth averaged 7.5% in FY24, up from 5.8% the previous year, while electricity’s output growth ebbed to 7.1% from 8.9% in FY23. “The consumption scenario remained mixed in FY24 with urban demand showing resilience while rural demand continued to lag,” Sinha said.
In March, however, consumer goods have shown a revival, buttressing the feeling of consumption picking up towards the year-end, say economists. “Both durable and non-durables have done well,” said Sabnavis. “This should be sustained as the rabi crop is expected to be good and along with the wedding season should fuel spending in April and May.”Sequentially, factory output rose 8.2% in March, at the highest rate in a year, which is typically the case every year.
However, the IIP growth recorded in the February-March period is lower than the average growth of 9.1% recorded in the same period in the past 12 years.Petroleum products — accounting for 15% of the manufacturing index — contracted in the two months of the last quarter of FY24.
This largely indicates a decline in demand conditions on the domestic front, say economists.Within the use-based category, output growth of consumer durables declined to 9.5% in March from 12.4% in February, while that of consumer non-durables rose to 4.9% from (-)3.5%.Infrastructure goods output growth, meanwhile, eased to 6.9% in March from 8.5% in February, and intermediate goods growth fell to 5.1% from 8.7%.
Capital goods output growth, on the other hand, rose sharply to 6.1% in March from 1% in February.The overall pattern of IIP growth continues to demonstrate unevenness and weakness in industrial recovery, says India Ratings and Research. High frequency indicators such as steel production, coal production, electricity output for April indicate a moderation in industrial activity. Thus, the agency expects growth of IIP to come in at around 4% in April.