Manufacturing drags IIP growth down to 3-month low

New Delhi: India’s industrial production growth declined to three-month low of 5.8% in September from 10.3% expansion recorded in the previous month, dragged by sluggish growth in the manufacturing sector, National Statistical Office (NSO) data showed on Friday.

Annual growth of the manufacturing sector that has 77.63% weight in the Index of Industrial Production (IIP), declined to 4.5% in September from 9.3% recorded in the previous month.

While the moderation was broad-based across all sub-sectors and use-based categories, the performance of consumer goods was especially tepid at 1% and 2.7%, respectively, for durables and non-durables, resulting in the manufacturing sector's performance trailing that of mining and electricity, said Aditi Nayar, chief economist at ICRA.

Factory output measured in terms of IIP registered a cumulative growth of 6% in the first six months of the current financial year, which is lower than 7.1% expansion recorded in the same period of last year.

The industrial growth performance in the month of September 2023 was better when compared with the same month of last year. IIP growth in September 2022 stood at 3.3%, which went up to 5.8%, this year. Likewise, manufacturing sector growth in September 2022 stood at 2%, which improved to 4.5% in September 2023.

However what make these growth numbers doubly unimpressive is that these marginal growth is being resisted on a low base. 

“A slowdown in industrial growth could be worrisome as it might hurt employment opportunities in rural and semi-urban areas,” said Mohit Rahlan, CEO, TIW Capital.  

“This becomes even more important as kharif sowing this year has remained weak. It might hurt consumer confidence and overall consumption subsequently. Against the backdrop of a slowing global economy, reliance on domestic growth drivers will be even more,” Rahlan said.

Growth in mining and electricity output remained robust during the month. Mining sector posted a year-on-year growth of 11.5% in September, the third straight month of double-digit growth. Electricity output in September was 9.9% higher when compared with the same month last year.

Disappointing numbers came from consumer durable and non-durables segments, said Sunil Kumar Sinha, principal economist at India Ratings and Research. “So long as these segments do not revive comprehensively, a broad-based and sustained pickup in IIP growth will remain elusive,” he said.

On future growth projections, Sinha noted that high frequency indicators such as coal, power demand, steel, e-way bills grew in the range of 11%-30% year-on-year in October 2023. “This suggests economic activity gathering some momentum in October 2023 due to festive demand,” he said.

This along with a favourable base effect (October 2022: negative 4.1% yoy) may keep IIP growth around 10% YoY in October 2023, he added.