India’s factory-output growth based on the Index of Industrial Production (IIP) rose to a 14-month high of 10.3% in August, propelled by the statistical effect of a low base, robust manufacturing and a sharp rise in electricity output. The IIP had shrunk 0.7% year-on-year in August 2022.
Electricity production in August 2023 grew 15.3% year-on-year, the highest pace in 14 months, and 8.1% sequentially. A sharp rise in power output could be attributed to deficient rainfall during the month that led to a spike in electricity demand. In August, rainfall across the country was 36% below the long-period average (LPA).
Manufacturing output was up 9.3% in August, which also was the highest growth recorded in 14 months. Sequentially too, the output of the sector rose by 1.2% indicating an uptick in manufacturing activity that has been bearing the brunt of global slowdown since the past several months.
Of the eight-major sub-sectors in manufacturing, seven showed a year-on-year rise in production in August, and six of them grew above 10% during the month. The sub-sectors include petroleum products, basic metals, machinery equipment, motor vehicles, and pharmaceuticals among others.
Mining activity on the other hand remained flat during August, even after growing 12.3% on year on account of the low base effect.
“The sharp rise in IIP to 10.3% on-year in August from 6.0% previous month ties up with S&P Global Purchasing Managers Index (PMI) for manufacturing rising to a 3-month high of 58.6 in August, versus 57.7 in July,” said Dipti Deshpande, Principal Economist, CRISIL. “The rise was broad-based across manufacturing sectors,” she said.
Within the use-based category, all the six sectors recorded year-on-year growth with infrastructure goods’ output growing at 14.9%, followed by capital goods at 12.6% and primary goods at 12.4%. Capital goods production also rose 6.5% on year in August.
Consumer durables output rose 5.7% on year, while consumer non-durables output grew 9.0%. August market the first time in nine-months, consumer durables production recorded a y-o-y growth indicating demand resilience.
“IIP Infrastructure and Construction goods have continued to show a robust growth, but the critical aspect is the improvement in IIP consumer goods both durables and non-durables,” said Rajani Sinha, chief economist, CareEdge.
“It will be critical to see if this momentum is sustained as a broad-based recovery in consumption demand can provide a strong boost to the economy,” she said.
ICRA’s Chief Economist Aditi Nayar says that looking ahead, a shift in the festival calendar may provide an optical boost to the growth of certain categories within the IIP in the months of September and November 2023, with a concomitant moderation in the prints for October 2023.