IIP grows 3.6% in Oct, touches 8-month high on consumer goods, electricity

Signalling an economic upsurge, India’s industrial activity touched an eight-month high in October, posting growth for a second straight month, led by significant expansion in consumer goods, electricity, and infrastructure goods, the official data showed on Friday. The revival was aided by festival season demand and a low base of last year, which may not be sustainable, cautioned economists.

The Index of Industrial Production (IIP) grew by 3.6 per cent in October on a year-on-year (YoY) basis compared to a 0.4 per cent expansion in the previous month, the data released by the National Statistical Office showed. The IIP had contracted by 6.6 per cent in the corresponding period of last year. Industrial activity had turned positive in September after a gap of six months.

The data complements a set of other broad economic indicators such as generation of e-way bills, goods and services tax collection, and automobile sales, indicating the reinstatement of normalcy in economic activity after months of disruption caused by Covid-19.

“While IIP growth stood at an eight-month high and displayed its best performance since the pandemic struck, the pace of the improvement in October was feebler than expected…It trailed our expectation of a sharper growth of 5.5 per cent, that we thought would be driven by the building up of inventories prior to the festive season,” said Aditi Nayar, principal economist, ICRA Ratings. 

“We anticipate a slide in IIP growth in November. Moreover, a slippage back into a mild contraction in November cannot be ruled out at this point,” added Nayar.

Sunil Kumar Sinha, principal economist, India Ratings and Research, expressed cautious optimism over the IIP data and said he would wait for a few more months to believe that the economy was firmly on the path to recovery. “In the past, IIP growth, more than once, has collapsed after a couple of months of good growth,” said Sinha.

Manufacturing sector activity posted growth for the first time since February, expanding by 3.5 per cent, while consumer durables sub-sector posted a double-digit expansion, mainly led by festival demand. Consumer durables, comprising mainly white goods and mobile phones, saw 17.6 per cent growth compared to 3.4 per cent growth in the previous month and a 18.9 per cent decline in October last year.

Consumer non-durables, comprising essential goods with a broadly non-elastic demand, grew by 7.5 per cent in October. 

Construction goods production grew by 7.8 per cent during the month. The manufacturing category makes up 77 per cent of the index.