India's industrial production growth recovers to 5.2% in January

Growth in factory output, or index for industrial production, recovered to a two-month high of 5.2 per cent in January, from 4.7 per cent in December, on the back of a lower base and double-digit growth in the electricity output, the Index of Industrial Production (IIP) data released by the National Statistical Office (NSO) on Friday showed.

The growth in electricity output accelerated to 12.7 per cent, whereas manufacturing also recovered to 3.7 per cent. The expansion in mining output, however, decelerated to 8.8 per cent from 9.8 per cent last month.

In the first 10 months of FY23 (April-January), IIP grew 5.4 per cent against 13.7 per cent during the year-ago period.

Ten of 23 manufacturing sectors in the IIP, such as tobacco, textiles, apparel, leather, wood, metals, computers, transport, furniture, and other manufacturing sectors, registered contraction during January.

Rajani Sinha, chief economist, CARE Ratings, said export-intensive items such as textiles, leather and apparels continued to witness contraction in output, whereas expansion in the consumer non-durable goods output for the third consecutive month is a positive development.

“Resilient urban demand, easing commodity prices and improvement in rural demand are tailwinds for industrial output. Going ahead, factors such as high inflation, rising interest rates, weak external demand and waning domestic pent-up demand pose downside risks for the momentum in industrial activity,” she added.

Madan Sabnavis, chief economist at Bank of Baroda, said the manufacturing growth has been on the lower side, despite a low base last year, mainly because the production-linked incentive (PLI) scheme gains haven’t accrued to the export-intensive sectors such as textiles and electronics.

“Growth was pushed down mainly by textiles and electronics, with the former being affected by rising costs and declining exports due to global slowdown. Computers/electronics group witnessed a 29.6 per cent fall this month. The sector was to benefit the most from the PLI scheme. Given that growth has declined 3 per cent for 10 months, it does look like the gains have not yet accrued,” he added.

Infrastructure goods and capital goods grew at a robust 8.1 per cent and 10.95 per cent, respectively.

Consumer durables comprising fast-moving consumer goods (FMCG) contracted (7.5 per cent) for the second straight month, signalling the effect of higher inflation. The consumer non-durables sector, however, expanded for the second straight month since November, and recorded a 6.2 per cent growth.

Aditi Nayar, chief economist, ICRA, said growth in January was largely in line with the growth prospects with a healthy performance of primary, capital and infra goods and consumer non-durables, thus, offsetting the marginal rise in intermediate goods and discouraging contraction in consumer durables.

“Despite the subdued base related to the third wave of Covid-19, some of the available high frequency indicators recorded a weaker year-on-year (YoY) performance in February 2023, relative to January 2023, such as Coal India Limited’s output, rail freight traffic, ports cargo traffic, electricity generation and auto output. In contrast, vehicle registrations and finished steel consumption witnessed an improved performance in February 2023, relative to the previous month. Based on these trends, we expect the IIP to record a dip in the YoY growth to 3-5 per cent in February 2023,” she added.

The IIP data comes in the wake of the quarterly estimates of gross domestic product (GDP) for the Q3, FY23, released by the Ministry of Statistics and Programme Implementation (MoSPI), earlier last week. The data showed that the economy grew 4.4 per cent in the third quarter as manufacturing output contracted for the second consecutive quarter, and consumer demand slowed. However, the estimates are still hopeful that India’s gross domestic product (GDP) would grow at 7 per cent in FY23.